Low Capital Gains Tax Rates Cause Investment Bubbles
*Click to Enlarge* • Background Chart: Source • Capital Gains Data: Source Most economic charts display the effects of an action. The key is finding out what particular decision was the catalyst for the charts behavior. The increasing share of wealth in the top 1%, the housing crisis, the bank failures, and the shift to reduced US savings are all effects that happened as a result of an initial decision. Showing correlation between those effects may help paint a picture of current issues in the economy, but it still doesn’t explain the reason behind them. A true conclusion can’t be made until the change to a decision variable is shown to produce the same type of effects over time. This reasoning is why the 1929 stock market crash can’t be cited as the cause of the Great Depression. The stock market crash in itself is an effect of a previous decision. The decision to lower capital gains tax rates is an action. One that’s had a history of being followed by natural chain of events. A reduction to the capital gains tax rate causes a surge in investments. Since the top 1% own the majority of money able to be invested (currently over double the net financial assets then the bottom 90% combined), they subsequently receive the majority of increased wealth created by the tax cuts. The influx of money pushed into certain areas (typically real estate and the stock market) can happen so quickly that investment bubbles occur. These bubbles inevitably burst sparked by a large portion of investors taking profits under the lowered long term capital gains tax rate. The decision to cut top marginal taxes to a Depression level rate is the type of action that causes many ripples throughout the economy. That action has led to the economic crisis we are still battling today.
Table of Contents & Page Links
1) Income Inequality Influences the US Personal Savings Rate
2) Income Disparity Sparked by Low Top Marginal Tax Rates
3) Unequal Distribution of Wealth
4) Tax Breaks and Tax Loopholes for the Rich
5) Low Capital Gains Tax Rates Cause Investment Bubbles
6) Great Depression VS Great Recession
7) The Job Creators Myth Debunked
8) Government Spending and the National Debt
This is a working paper and will be updated and expanded upon as time permits. All comments, questions, and alternative opinions are greatly appreciated.
Brian Rogel isn’t a household name but his analysis of wealth inequality could become household reading. -YAHOO! News