In the new tax law that went into effect on January 1, capital income tax rates on certain high-income taxpayers went from 15% to 20%. When you add in the new 3.8% Medicare
surtax on net investment income, which includes capital gains, you get an overall 23.8% capital income tax rate for high-income taxpayers. (High-income generally means $400,000 in annual income for single taxpayers and $450,000 for married taxpayers.) Some people claim that higher taxes on capital income will discourage investment, harming the economy and depressing employment.
In this article, Chris Sanchirico of Penn Law School concludes otherwise. Here's the abstract:
One of
the main arguments against raising capital income tax rates is that
doing so discourages savings and investment and hinders economic growth.
However, academic research on taxes and growth suggests that this
argument has no real basis. And the primary alternatives to capital
income taxation — labor income taxes and increased government borrowing —
carry their own potentially adverse effects on growth.
