In Defense of the Capital-Gains Loophole
Most tax breaks create distortions. The tax break for capital gains does the opposite: It reduces a distortion.
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A new report from the Congressional Budget Office says high earners benefit most from the complexities in the U.S. tax code -- which isn't exactly surprising. The system is a thicket of deductions and credits. Those who can pay for professional help or shift their income around benefit most. The preferential rate on investment income is among the largest of these tax breaks.
Long-term capital gains are taxed at a top marginal rate of 23.8 percent as compared to 39.6 percent for ordinary income. That reduces annual revenue by $161 billion, the CBO found. This is also the most regressive of the tax breaks: 93 percent of the benefits accrue to the top fifth of earners and two-thirds to the top 1 percent.