scholarly journals The Tax Elasticity of Capital Gains and Revenue-Maximizing Rates

2021 ◽  
Vol 3 (4) ◽  
pp. 399-416
Author(s):  
Ole Agersnap ◽  
Owen Zidar
Keyword(s):  
Rate Increase ◽  
State Level ◽  
The State ◽  
Capital Gains ◽  
Tax Revenue ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Federal Level ◽  
Long Run

This paper uses a direct-projections approach to estimate the effect of capital gains taxation on realizations at the state level and then develops a framework for determining revenue-maximizing rates at the federal level. We find that the elasticity of revenues with respect to the tax rate over a 10-year period is −0.5 to −0.3, indicating that capital gains tax cuts do not pay for themselves and that a 5 percentage point rate increase would yield $18 to $30 billion in annual federal tax revenue. Our long-run estimates yield revenue-maximizing capital gains tax rates of 38 to 47 percent. (JEL E62, H25, H71)

scholarly journals Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform

2010 ◽  
Vol 2 (1) ◽  
pp. 131-168 ◽  
Author(s):  
François Gourio ◽  
Jianjun Miao
Keyword(s):  
Capital Accumulation ◽  
Firm Heterogeneity ◽  
Percent Level ◽  
Capital Gains ◽  
Tax Rates ◽  
Aggregate Productivity ◽  
Capital Gains Tax ◽  
Productivity Shocks ◽  
Long Run ◽  
Dividend Tax

To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent. (JEL D21, E22, E62, G32, G35, H25, H32)

scholarly journals Long-Term Capital Gains Tax Strategies: Correlated Protective Put Strategy

2011 ◽  
Vol 2 (8) ◽  
Author(s):  
John R. Aulerich ◽  
James Molloy
Keyword(s):  
Stock Price ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Holding Period ◽  
Put Option ◽  
Highly Correlated ◽  
One Year

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman; font-size: x-small;">A reduction in the long-term capital gains tax rate provides investors with new strategies to minimize taxes and protect investment gains.<span style="mso-spacerun: yes;">&nbsp; </span>One such opportunity exists when an investor decides to sell a profitable stock with a holding period of less than one-year, resulting in short-term ordinary taxes.<span style="mso-spacerun: yes;">&nbsp; </span>The investor would find it more beneficial to sell the stock after one-year lapses, resulting in lower long-term capital gain taxes, although the longer holding period exposes the investor to the uncertainty of stock price movement.<span style="mso-spacerun: yes;">&nbsp; </span>A strategy to extend the holding period without excess risk would be to use the protective put option strategy, sometimes referred to as &ldquo;investment insurance&rdquo;.<span style="mso-spacerun: yes;">&nbsp; </span>The strategy involves the purchase of a put option to protect against the possible decline in the stock price, to take advantage of the lower long-term capital gains tax rate, and to preserve the upside potential of the stock.<span style="mso-spacerun: yes;">&nbsp; </span>Pursuant to IRS Publication 550, the IRS does not allow the use of a protective put to extend the holding period on the same security considered for sale.<span style="mso-spacerun: yes;">&nbsp; </span>Since the IRS does not allow a direct protective put hedge, this study will explore an alternative strategy involving the purchase of a put on a highly correlated investment to extend the holding period to recognize lower capital gains tax rates.<span style="mso-spacerun: yes;">&nbsp; </span>The paper presents example situations when an investor benefits from utilizing the correlated protective put option strategy.</span></p>

The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act

2014 ◽  
Vol 6 (1) ◽  
pp. 114-136 ◽  
Author(s):  
Laura Kawano
Keyword(s):  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Tax Rate ◽  
Consumer Finances ◽  
Household Portfolio ◽  
Using Data ◽  
The Relationship ◽  
Dividend Tax

This paper provides evidence that dividend and capital gains tax rates importantly influence household portfolio choices. Using data from the Surveys of Consumer Finances around the 2003 dividend tax reductions, I estimate the relationship between taxes and household portfolio dividend yields. I find that a one percentage point decrease in the dividend tax rate relative to the long-term capital gains tax rate causes household portfolio dividend yields to increase by 0.04 percentage points. The results suggest that high income households significantly increased their portfolio dividend yields in response to the 2003 dividend tax rate reductions. (JEL D14, G11, G35, H24)

The Effect of the Expected Holding Period on the Market Reaction to a Decline in the Capital Gains Tax Rate

2002 ◽  
Vol 24 (s-1) ◽  
pp. 49-64 ◽  
Author(s):  
Jia-Wen Liang ◽  
Steven R. Matsunaga ◽  
Dale C. Morse
Keyword(s):  
Market Reaction ◽  
Capital Gains ◽  
Significant Variable ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Rate Reduction ◽  
Tax Rate ◽  
Holding Period ◽  
Tax Relief ◽  
The Impact

We use the market reaction to capital gains tax rate reduction in the 1997 Tax Relief Act to investigate the market reaction to a change in investor-level tax rates. We find that the positive market reaction was lower for dividend-paying securities and securities with longer expected holding periods. Our results also support the hypothesis that a longer expected holding period reduces the impact of the dividend-paying status. These results are consistent with the tax capitalization model and suggest that the expected holding period is a significant variable in explaining the market reaction to a change in capital gains tax rates.

scholarly journals Treasury Bill Yield Reactions to the 1997 Capital Gains Tax Rate Reduction

2005 ◽  
Vol 27 (s-1) ◽  
pp. 55-70 ◽  
Author(s):  
Garth F. Novack
Keyword(s):  
Equilibrium Model ◽  
Capital Gains ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Rate Reduction ◽  
Short Term ◽  
Treasury Bills ◽  
Tax Rate ◽  
Institutional Determinants ◽  
Investment Returns

I provide evidence that changes in shareholder-level taxes influence investment returns even when income from the investment is not subject by statute to the rate that is changed. Using an equilibrium model of after-tax investment returns I predict the yields of Treasury bills, which are subject only to ordinary tax rates, will have an inverse reaction to changes in the capital gains tax rate as the income on them becomes increasingly tax-disadvantaged when compared to other investments. In a sample comprised of short-term Treasury bills, yields appear to increase in response to the May 7, 1997 surprise reduction in capital gains tax rates. The increase is statistically significant and is robust to other macroeconomic and institutional determinants of Treasury bills.

Institutions Respond to Changing Federal and State Environments

2020 ◽  
pp. 67-90
Author(s):  
Nancy Kleniewski
Keyword(s):  
Higher Education ◽  
Financial Aid ◽  
Research Funding ◽  
Government Regulation ◽  
State Level ◽  
The State ◽  
Institutions Of Higher Education ◽  
Federal Level ◽  
The Past ◽  
Regulation Changes

Institutions of higher education must respond to the changing landscape of federal and state expectations. This chapter explores how that landscape has changed over the past two decades and how some institutions are responding. At the federal level, changes have affected financial aid, research funding, and government regulation. Changes at the state level include significant reductions in state support and increases in tuition. These changes are occurring as higher education becomes more of a marketplace than a public service. The chapter offers some strategies for institutions hoping to garner increased support, particularly at the state level.

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