Legislators, experts examine economic impact of capital gains tax

The recent statement by Mitt Romney that he pays an effective tax rate of about 15 percent has touched off another round of the ongoing discussion of the capital gains tax.

Many wish to see the rate of the capital gains tax increased, for a number of reasons. Some believe it is an opportunity to increase federal government revenues and reduce the budget deficit. Some cite the current rate of 15 percent as a provision that encourages income inequality by rewarding wealthy financiers, and others have stated that a higher tax rate would reduce speculation and volatility in the economy.

While some experts say that keeping the rate of the capital gains tax low benefits the economy by encouraging investment, The Washington Post reports, others say that it has little effect on what investors do with their money.

On the other hand, Forbes reports that many remain in favor of a low capital gains tax rate. Beyond promoting investment that can drive entrepreneurship and business growth, the source notes, some point out that corporate profits are taxed before gains are realized, making the capital gains tax redundant. They also point out that some capital gains are a result of inflation, making taxation potentially unfair and unreasonable.

Some oppose the current tax structure because it adds to the complexity of the tax code to treat capital gains differently from wage income. Day traders and others who receive their income primarily in the form of capital gains may find the tax rate or the structure changing in the near future.