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Are capital gains the Achilles’ heel of taxing the rich?

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  • Joel Slemrod
  • Xinyu Chen

Abstract

This paper considers the role of capital gains taxation in enhancing tax progressivity, and argues that capital gains are the Achilles’ heel of taxing the rich more effectively. We revisit the key aspects of how capital gains are taxed and address the main arguments against taxing capital gains more heavily: (i) it would discourage socially beneficial activities, such as innovation, (ii) implementing structural changes is unadministrable, and (iii) the ‘lock-in’ effect means that increasing the tax rate is an inefficient way to raise revenue. To address concerns with the unpopularity of taxing unrealized gains during one’s lifetime and retroactive taxes, we conclude with a partial proposal for constructive realization at death that would apply only to gains accrued after a certain date, while allowing for discounted pre-payments of tax liability.

Suggested Citation

  • Joel Slemrod & Xinyu Chen, 2023. "Are capital gains the Achilles’ heel of taxing the rich?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 592-603.
  • Handle: RePEc:oup:oxford:v:39:y:2023:i:3:p:592-603.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grad027
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    Cited by:

    1. José M. Domínguez & Carmen Molina & Ana Patricia Montes, 2024. "Personal Income Tax And The Taxation Of Billionaires: Is The Haig-Simons Model Feasible?," Working Papers REM 2024/0326, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    Keywords

    capital gains; taxation;

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