When we have a high income tax rate, the capital gains tax has been given preferentially lower rates. This was necessary because the absurdly high income tax rates would have hurt capital formation should it be applied to capital. Moreover, since taking capital gains is a voluntary activity (you can hold stock forever and not pay tax on the gains). In 1986 tax reform that cap gains preference went away, at a rate of 28%, but it crept back in as the top rate of tax crept back up. In particular, the 1997 tax cut made longterm cap gains only 15%.

There is a valid concern when we eliminate capital gains tax even when the ‘regular tax’ is at low rates. The ‘capital formation’ argument for lowering rates to the point of elimination is fairly weak; after all, we have 15% cap gains now, so a 9% rate would be a rate cut. Why would we make cap gains rate preferential to regular wage income when its low enough? People who make capital gains have added to their wealth, its a form of income, they just have done it by making their money work for them instead of via sweat / labor / skill. Why would we treat capital better than labor?

IF WE HAVE LOW INCOME TAX RATES, SUCH AS 9%, WE HAVE THE OPPORTUNITY TO KEEP IT SIMPLE AND BROAD, BY TAXING ALL FORMS OF GAIN OR INCOME EQUALLY.

“Cain

“capital gains a result of investing/risking money that was ALREADY taxed as income as some point. ”

This is really not an issue, or not true. If I buy a $10 stock, hold it for 3 years, then sell it at $30, that $20 gain was never taxed on me. The value was created and no more taxed than if I bought a $10 shaft of wood, whittled into a $30 flagpole and sold it. Profit!

Now if the money that capital was making was taxed … what of it? In the 9-9-9 we are ALSO “double taxing” when we add a business margins tax on a sales tax on an income tax. my income is ‘double taxed’ when I pay state and local sales and other taxes. And labor today is double taxed on payroll and income.

I agree that … “We should always support lower taxes and always support reducing government” and no, we will never end up spending and taxing too little, any more than someone morbidly obese could accidently die of starvation.

So what’s the best way, fairest and least damaging way to tax? Do it via a balanced approach.

Progressive taxes with high rates are NOT fair and we need to point out that.
But conversely, regressive taxes are problematic, favoring capital over labor is as wrong as the vice versa approach.

So I advocate no favorites.

To me, that means the best approach would be a flat income tax. One rate with just one simple exemption for families with dependents. Scale back EITC and eliminate all deductions and loopholes. It might be a simple 20%, tax ALL income at that same rate. corporate, capital gains, wages, dividends, etc.

I also think we could reform the payroll tax by ending the cap, and at the same time dramatically reducing it, with an optout. eg 8% flat tax with an added 4% to be ‘in standard social security 0% to ‘opt out’ with the requirement that you need to be in a retirement system with a minimum 5% contribution to it.

Any I would shift taxes to consumption. If not the Cain 9%, perhaps a simple 5% tariff on all imports not coming from Trade Agreement partners.

Why the concern on ‘regressive taxes’? Other than the economic side of it, what’s really efficient and fair, its the obvious politics. When you have polling that is now 2 to 1 ‘for’ the ‘tax the rich’ ideas, we have a dangerous brew of envy and greed. Not that we have to cater to it, but we have to acknowledge that pushing regressive taxation to replace progressive taxation is politically perilous. (In other words, Santorum is right; 9-9-9 likely wont pass Congress. Just as Democrats have demagogued Fair Tax as a massive tax hike on the middle class, they will do that here as well.)