Capital gains tax going up, expert writes

Any significant federal fiscal reform plan is likely to include a higher capital gains tax rate, expert Ronald Barusch recently wrote in The Wall Street Journal.

Federal lawmakers with opposing views of the tax code are considering either higher taxes on high earners, who Barusch indicates benefit most from the fact that the capital gains tax rate is lower than the income tax rate, or a tax code with lower, flatter marginal rates.

In the former case, higher capital gains taxes may be the only way to increase federal tax revenue derived from individuals who get little of their income from salaries and wages, according to Barusch. In the latter, on the other hand, eliminating tax preferences for capital gains may be a necessity in order to balance lower marginal rates.

Day traders would feel the impact of such a change on their business, since capital gains are generally their primary income source. Barusch also estimates that many other investors are likely to rush deals in an effort to take advantage of the current tax rate before such an increase took effect, among other consequences.

According to opponents, a higher capital gains tax rate is detrimental to economic growth because it discourages the investment that fuels entrepreneurship and business expansion. If a slowdown does occur, day traders may find the pace of activity slows, possibly discouraging investment by making it less profitable. They may wish to support alternative measures to raise federal revenues.