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Economic and Revenue Effects of Permanent and Temporary Capital Gains Tax Cuts, January 29, 2003 1 (January 29, 2003)

handle is hein.tera/crstax0046 and id is 1 raw text is: Order Code RS21014 Updated January 29, 2003 CRS Report for Congress Received through the CRS Web Economic and Revenue Effects of Permanent and Temporary Capital Gains Tax Cuts Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary During the 107th Congress proposals were made to enact either a temporary or a permanent capital gains tax cut. The former would probably gain revenue in the first 2 years but lose that revenue and more, most likely within the following 3 years. H.R. 3090, passed by the House, would lower the top tax rate from 20% to 18% for assets held at least a year. The Senate Finance Committee version of H.R. 3090, did not reduce capital gains taxes. President Bush's current dividend relief proposal contains some capital gains relief as well. A capital gains tax cut appears the least likely of any permanent tax cut to stimulate the economy in the short run; a temporary capital gains tax cut is unlikely to provide any stimulus. Permanently lower capital gains taxes can contribute to economic efficiency in some ways and detract from it in others. Capital gains tax cuts would favor high income individuals, with about 80% of the benefit going to the top 2% of taxpayers. This report will be updated to reflect legislative developments. Introduction Recent proposals have been made to enact a capital gains tax cut, and some arguments have been made that such tax cuts are needed to stimulate the economy. Proposals include both temporary cuts in capital gains taxes rates for 2 years as well as permanently lower rates. Interest in a tax stimulus package has increased following the terrorist attack of September 11, and a capital gains tax cut is one of a number of tax cuts being discussed. H.R. 3090, passed by the House on October 24, in a 216-214 vote, would lower the top tax rate to 18% for assets held a year. The Senate Finance Committee version of H.R. 3090, which was approved by the Committee on November 8, does not contain a capital gains tax cut. President Bush's dividend relief proposal effectively contains prospective capital gains relief for corporate stock because it would increase basis attributable to retained Congressional Research Service ** The Library of Congress

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