Americans for Tax Reform today sent the following letter to Congressman Peter Roskam (R-Ill.):

On behalf of Americans for Tax Reform, I am pleased to support H.R. 3091, a bill which would make permanent the current tax rates on capital gains and dividends.

Through 2012, the capital gains and dividends tax rate will remain at 15%.  Starting in 2013, the capital gains rate will rise from 15% to 20%.  The dividends top rate will rise from 15% to 39.6%.  In addition and still in need of repeal, Obamacare has scheduled a further 3.8 percentage point hike in both rates starting in 2013.  H.R. 3091 would keep the capital gains and dividends tax rate at 15% permanently, though the 3.8% Obamacare investment surtax would still threaten savers.

Needless to say, these looming tax hikes on capital gains and dividends would be devastating for families already struggling to save for retirement.  History has shown that the stock market is very sensitive to rate changes in the capital gains tax.  Markets are efficient at pricing in changes to after-tax returns on stocks and mutual funds.  Raising the tax rate on investments means less after-tax profit retained by the investor.  This lowers the intrinsic value of all stocks.  A hike in the capital gains rate will be priced into stock values, causing either a market decline or sluggish performance.  Even if families save exclusively through tax-neutral vehicles like 401(k) plans and IRAs, their nest egg will take a hit as the capital gains rate hike is incorporated into the price of stocks.

Under a consumption-based tax system, which most economists believe would maximize economic growth and job creation, the tax rate on capital gains and dividends should be “0 percent.”  This is because a tax on capital gains and dividends represents a second layer of taxation on savings.  All income should be taxed once and only once.  The capital gains and dividends tax is a surtax, not a preferential rate.

I urge all Congressmen to co-sponsor H.R. 3091.

PDF of Letter

Posted by Ryan Ellis on Monday, October 24, 2011 5:27 PM EDT

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