It appears that the Biden administration has three goals in raising the US capital gains tax rate from 20 to 43 percent. The first, of course is to punish successful people who are clever enough to acquire assets that appreciate. As his old boss, Barack Obama once argued, it is better that everyone be poor than tolerate a policy that allows differences in standards of living, even if everyone is better off. The goal is not to raise revenue, because his advisors, at least, know the facts that I set out in Part 1. Raising capital gains tax rates does not generate more income. It almost certainly generates less, especially in settings, iike the US, where individuals and firms are already paying taxes on other forms of income.
Second, Biden seems to have a desire to simply be remembered as an extremist along the lines of FDR. This involves doing dumb things that make him appear a big, important man in policy, and hopefully, history. I say this with some confidence because the country with the highest capital tax in modern times has been Denmark, at 42 percent. Thus, Biden’s odd choice of 43 percent is simply an infantile effort to stand out. What a man.
Third, his administration has plans, as his Secretary of the Treasury has stated, to try to create a worldwide tax cartel among other countries. The idea is to talk them into fixing a high, minimum rate so that there cannot be “a race to the bottom” through competition in the rate levied. In economics terms, of course, trying to fix the capital gains tax worldwide at a higher rate is actually a race to the bottom of capital investment and growth.
Sending Secretary Yellen around the world on such a goofy mission is unlikely to be successful. The 28 large OECD economies has a wide range of rates. The mean rate is around 14 percent, less even than our current 20 percent. This is due in part to the fact that nine of the countries have a zero rate. Belgium, the Czech Republic, Korea, Luxembourg, Netherlands, New Zealand, Slovenia, Switzerland and Turkey have had zero rates in modern times. Another 60 percent of the countries have a rate of 28 percent or lower, and only 5 are in excess of that rate. Denmark, France, Finland, Ireland and Sweden make up this group, but if one looks closer, some of them have lower tax rates on other sources of income. France is one country that is in the midst of tax reform and unlikely to sign on to Biden and Yellen's tax cartel. That kind of accommodation to avoid suppression of jobs and capital appears nowhere in Biden’s plans.
