Rethinking How We Score Capital Gains Tax Reform

Natasha Sarin, Lawrence Summers, Owen Zidar and Eric Zwick

No 28362, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the composition of capital gains has shifted in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. Third, focusing on capital gains tax collection may understate fiscal spillovers from decreasing the preferential tax treatment for capital gains. Fourth, additional base-broadening reforms, like eliminating stepped-up basis and making charitable giving a realization event, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise $1 trillion more revenue over a decade than other estimates suggest. Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and be the subject of external professional debate and review.

JEL-codes: H0 H2 H3 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-pbe and nep-pub
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Published as Rethinking How We Score Capital Gains Tax Reform , Natasha Sarin, Lawrence Summers, Owen Zidar, Eric Zwick. in Tax Policy and the Economy, Volume 36 , Moffitt. 2022

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Journal Article: Rethinking How We Score Capital Gains Tax Reform (2022)
Working Paper: Rethinking How We Score Capital Gains Tax Reform (2022)
Chapter: Rethinking How We Score Capital Gains Tax Reform (2021)
Working Paper: Rethinking How We Score Capital Gains Tax Reform (2021)
Working Paper: Rethinking How We Score Capital Gains Tax Reform (2021)
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