A Letter Urging Congress to Reject Capital Gains Tax Hikes

A Letter Urging Congress to Reject Capital Gains Tax Hikes

July 16, 2007

Dear Representative,

On behalf of the millions of grassroots investors who are members of our organizations, we strongly urge you to reject any increase in the 15 percent tax rate on capital gains for individuals or for partnerships.

Raising the capital gains tax rate will dramatically reduce the after-tax return on stock investments, which would send markets reeling and adversely impact the 60 percent of American families who are now invested in individual stocks, mutual funds, 401(k) plans, Individual Retirement Accounts (IRAs), union pensions and other investment vehicles.

It would significantly raise the cost of capital, drying up investment in many innovative, entrepreneurial companies, jeopardizing future job creation for millions of American workers. It also would hit the U.S. Treasury hard, contrary to the conclusions of the static-revenue scorekeepers. Every capital gains rate hike in the past 30 years has led to lower federal revenues, while every capital gains rate cut has led to higher revenues.

Partnership carried interests are capital gains. They represent a return on risk capital, in the form of the sweat equity of the general partners who put together these deals. General partners who sell a portion of their profits to limited partners are no different from any entrepreneur with an idea to build a company who uses equity financing to build that company with other people’s money. General partners in investment partnerships, like other entrepreneurs, typically retain an ownership stake based on the human capital they put into the deal, even if they put in little or no money of their own. Congress Members calling this capital income wages doesn’t make it so.

The primary rationales for taxing capital income at a 15 percent rate are that it alleviates double-taxation of corporate profits and that it encourages risk-taking by rewarding it, when it is successful, with higher after-tax returns. Both of these rationales weigh in favor of a capital gains tax rate of zero, as former Federal Reserve Chairman Alan Greenspan repeatedly advised Congress.

Capital income should be taxed at the lowest possible rate without respect to who the taxpayer is.

Characterizing the treatment of capital gains as a loophole for some taxpayers will lead to it being called a loophole for everyone. Any concession to advocates of higher capital gains taxes is therefore more likely to embolden than to appease them. We therefore urge you to strongly oppose any attempt to increase the capital gains tax rate for partnerships or individuals.

Sincerely,

Fred Smith

President

Competitive Enterprise Institute

 

Tim Phillips

President

Americans for Prosperity

 

David M. Stanley

Chairman

Iowans for Tax Relief

 

Jim Martin

President

60 Plus Association

 

Alex-St. James

Chairman

African American Republican Leadership Council

 

David Keene

Chairman

American Conservative <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Union

 

Dick Patten

President

American Family Business Institute

 

Mark Chmura

Executive Director

Americans for the Preservation of Liberty

 

Ryan Ellis

Executive Director

American Shareholders Association

 

Grover Norquist

President

Americans for Tax Reform

 

Alvin Williams

President & CEO

Black America's PAC

 

Andrew Quinlan

President

Center for Freedom and Prosperity

 

Jeffrey Mazzella

President

Center for Individual Freedom

 

Doug Bandow

Vice President for Policy

Citizen Outreach Project

 

Pat Toomey

President

Club for Growth

 

Paul M. Weyrich

National Chairman

Coalitions for America

 

Morton C. Blackwell

Chairman

Conservative Leadership PAC

 

Tom Schatz

President

Council for Citizens Against Government Waste

 

Richard O. Rowland

President

Grassroot Institute of Hawaii

 

Tom Hoefling

Chairman

Idahoans for Tax Reform

 

Greg Blankenship

President

Illinois Policy Institute

 

Michelle Bernard

President and CEO

The Independent Women's Forum

 

Dr. Don Racheter

Moderator

Iowa Wednesday Group

 

Richard Falknor

Executive Vice-President

Maryland Taxpayers Association, Inc.

 

David Strom

President

Minnesota Free Market Institute

 

Forest Thigpen

President

Mississippi Center for Public Policy

 

Amy Ridenour

President

National Center for Public Policy Research

 

Lew Uhler

President

The National Tax Limitation Committee

 

John Berthoud

President

National Taxpayers Union

 

Sharon J. Rossie

President

The Nevada Policy Research Institute

 

Geoffrey Segal

Director of Government Reform

Reason Foundation

 

Paul Gessing

President

Rio Grande Foundation

 

Karen Kerrigan

President & CEO

SBE Council

 

Phil Krinkie

President

Taxpayers League of Minnesota

 

Rick Durham

President

Tennessee Tax Revolt

 

Michael Quinn Sullivan

President

Texans for Fiscal Responsibility