Capital Gains Tax Breaks Still Wrong

The benefits of preferrential tax rates for capital gains and dividends go 70.4% to those in the top 1% of taxpayer income (average income $1.662 million) and 14.4% to those in the next 4% of taxpayers (average income $272,200). The next 15% of taxpayers receive 9.0% of the benefit (average income $121,900). The bottom 80% of taxpayers receive 6.2% of the benefit.

The cost of the tax break in reduced collections is $91.7 billion in 2005.

Also, those who benefit from these breaks say they wouldn't change their behavior if the rates were increased somewhat.

According to the annual Bloomberg/Los Angeles Times investor poll, 69 percent of upper-income investors say a raise in the capital gains tax to 20 percent from 15 percent wouldn't cause them to sell assets they would otherwise hold.

The capital gains tax break also greatly increases the complexity of the tax code and fuels countless elaborate tax reduction schemes by converting what would otherwise be ordinary income for tax purposes into capital gains.