Proposed policy changes to capital gains and the net investment income tax

The third-party tax agenda

The third-party tax agenda

Abstract:

Most of the discussion between Democrats and Republicans on capital gains taxes is about the appropriate tax rate. The third-party tax agenda considers the economic impact of changes in rates along with several other policy levers.

· Does higher tax rates on capital gains discourage assets sales?

· What is the best ratio of the capital gains and net investment income tax rate?

· Should the tax base for net investment income taxes be expanded?

· Should 1031 exchanges be eliminated or modified?

· Can modifications to capital gains and net investment income tax rates stimulate increased sale of principal residences?

Introduction:

Most of the policy discussions between Democrats and Republicans on capital gains and the net investment income tax center on the appropriate tax rate. Not surprisingly, Democrats advocate for increases in tax rates and Republicans for lower rates. However, the debate on capital gains and net investment income tax is far more complex than a debate on where to set the tax rate.