Congressional Joint Hearing on Capital Gains Tax Reform
Yesterday, the Senate Finance Committee and the House Ways and Means Committee held a joint hearing on the capital gains tax. The tax rate for capital gains is currently 15 percent but if a Bush tax provision is allowed to expire at the end of the year, capital gains will be taxed at 20 percent. Capital gains have long been taxed at a different rate than ordinary income in order to encourage investment. Congress is reassessing the capital gains tax rate as they face the expiration of multiple tax provisions. The New England Council has supported maintaining the capital gains tax at 15 percent in order to encourage investment and economic growth. Visit the Financial Services page to learn more.
House Ways and Means Chairman Dave Camp (R-MI) opened the hearing by saying that the capital gains tax break should not be allowed to expire. He said that the reduced rate was an effort to avoid double taxation, noting that taxes have been paid on capital gains when they were earned by companies as revenue. Senate Finance Chairman Max Baucus (D-MT) said that most capital gains were earned by those in the top income brackets and only a third were on common stocks, creating inequity in the tax code.
A panel of tax experts told the Committees that they have an array of options when considering the many tax provisions that were coming before them. Witnesses and lawmakers agreed that comprehensive tax reform is the proper approach but they also agreed that it was unlikely. The Committee gave little indication of their intent but vetted many proposals suggested by witnesses. David Verrill of Hub Angels Investment Group LLC said that investors do not support a capital gains tax above 15 percent. He added that these investors drive new businesses and use the tax break to offset the losses of failed investments. Mr. William Stanfill of Montegra Capital Income Fund said that investors are constantly adjusting to the regulatory environment and will adjust to any changes Congress enacted. He said that policies should be fair to all income brackets but emphasized that long term certainty was needed to drive investment.
Democrats on the Committee expressed openness to increasing the capital gains tax if it was necessary for tax reform. Republicans emphasized that the earnings had already been taxed and would be subject to an extremely high end tax rate if they were not given preference. Still, Republicans did not rule out the possibility of increasing the capital gains tax as part of compromise legislation addressing many expiring tax provisions. It is unlikely that action will commence on taxes before the election but Congress is being confronted with many tax provisions set to expire by 2013.