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BIDEN'S PROPOSED HUGE TAX INCREASE ON CAPITAL GAINS A CASE STUDY IN WHAT NOT TO DO As a result of World War I America became the largest creditor nation in the world. It held this position until the early 1980s when things began to go downhill. America is the world's largest debtor with a staggering negative14 trillion-dollar International Investment position according to the latest statistics of the Commerce Department.. Meanwhile China has become the world's largest creditor with a net International Investment position of about 2 trillion dollars. How did this happen? Well there are many reasons but one of the biggest reasons is the China has a tax system that encourages savings while America has a tax system that punishes savings. A key factor here is that capital gains taxes in China and other emerging Asian states have been lower than they are in the United States. The Bush tax changes helped reduce this imbalance but the overall bias against savings in US tax code persists. For example, China does not have an estate or gift tax This is one reason why China has been so successful . America's performance in international trade since 1980 has been an absolute unmitigated disaster, and this year in spite of the supposed reforms of Trump, the balance of payments deficit and the trade deficit hit a new record high A case study of what we don't need to deal with this crisis is President Biden's plan to jack up capital gains taxes through the roof. He says that this will only apply to the rich. This is not true. It will hit middle-class taxpayers and devastate middle-class taxpayers if they should choose to sell their businesses . Furthermore let's assume you agree the rich should pay more, a reasonable assumption. You'd want to tax income and consumption not investment. The Biden tax increase goes in precisely the wrong direction and is going to worsen the overall economic performance of America and our performance in international trade.Some say American could copy socialist or social democratic nations in Europe. These nations have far higher taxes on energy and consumption than America. Meanwhile nations like Norway and Sweden have no estate tax. So the picture is clear. Raising taxes on invesment in America is the last thing we need to do. It's not "progressive". It's a sure way to create more economic problems. It could even trigger major liquidity problems in the economy. By making investment less attractive it could trigger major collapses in the financial and real estate markets. Anybody want that? We think not. |