Monetary Policy, Taxation, and International Investment Strategy

By Victor A. Canto; Arthur B. Laffer | Go to book overview

9
Fifteen Percent Is Fine, but Indexing Is Divine

VICTOR A. CANTO AND HARVEY B. HIRSCHHORN

The debate about capital gains taxation has been reopened by President George Bush. During the 1988 presidential campaign Bush stated that the maximum tax rate on capital gains on assets held for over one year should be lowered to 15 percent from the current 28 percent rate. He argued that, over time, the reduction in the capital gains tax rate would raise investment, national income, labor productivity, the capital stock, and the overall standard of living. Bush believes that the proposed tax rate reduction might even increase federal tax revenue. It has been reported that such a two-tiered tax rate reduction would also reduce volatility in the stock market.

Historically, capital gains tax receipts have comprised 5 percent of personal income tax receipts and less than 2 percent of all federal revenue. Moreover, capital gains on stock transactions have accounted for only one-third of total capital gains. Therefore, if viewed from a static framework, the capital gains tax would appear to have minor impact on the economy. If the rate reduction is to have the desired effect on the economy, it must have a profound effect on economic behavior through increased incentives.


THE REVIEW OF THE EVIDENCE

Researchers and policy makers continue to dispute whether a capital gains tax rate reduction would increase or decrease capital gains tax revenues. Accurate tax revenue estimation requires an understanding of the appropriate measurement

-123-

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Monetary Policy, Taxation, and International Investment Strategy
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures ix
  • Tables xiii
  • Introduction xix
  • Note xlii
  • PART ONE MONETARY POLICY 1
  • 1: Capacity Utilization and Inflation 3
  • 2: World Money and U.S. Inflation 13
  • 3: Alternative Monetary Theories of Inflation 25
  • 5: The Quality of Inflation Indicators 80
  • 6: The Yield Curve 87
  • PART TWO - FISCAL POLICY 93
  • 7 - Bush's Economic Agenda within a Supply-Side Framework 111
  • 8: Tax Amnesty: The Missing Link 113
  • 9: Fifteen Percent is Fine, but Indexing is Divine 123
  • Notes 144
  • 10: Stylized Facts and Fallacies of Capital Gains Tax Rate Reductions and Indexa tion 147
  • 11: Friday the 13th 157
  • 12: Debt and Taxes Are the Only Certainty 165
  • Note 173
  • 13: Borrowed Prosperity 175
  • Notes 187
  • 14: The Savings Monster 189
  • 15: Are We Climbing the Wall of Resistance toward National Health Insurance? 209
  • PART THREE INTERNATIONAL ECONOMIC ISSUES 219
  • 16: Tax Rate Reductions and Foreign Exchange Rates 221
  • Notes 230
  • 17: The Trade Balance 233
  • 18: National Paedomorphosis 241
  • PART FOUR PORTFOLIO STRATEGIES 255
  • 19: Part I: The Legend 257
  • Notes 267
  • 20: Part II 269
  • 21: The Small-Cap and State Competitive Environment 283
  • 22: International Stock Returns and Real Exchange Rates 301
  • Notes 320
  • Index 321
  • About the Contributors 327
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