Evan Soltas
Jan 19, 2012

Are Capital Gains Taxes Too Low?

A Response to Paul Krugman

Paul Krugman argues here that capital gains taxes are historically low. Unfortunately, he's clipped the graph of historical capital gains tax rates misleadingly. Here is the full historical data set, graphed.

Given the way illusory gains due to inflation were taxed in the 80s, and the sound economic reasoning for low capital gains taxes -- there is a "lock-in" effect of high taxes which impedes capital mobility and thereby reduces the allocative efficiency of capital -- I don't see this as a bad thing. If inequality is the issue here, there are ways with less damaging secondary effects to correct it.