Larry Kudlow and I had a debate tonight on whether the Buffet tax, or more broadly, raising tax rates on capital incomes, would have a negative impact on investment. I said ‘no,’ he said ‘yes,’ and that’s about where we started and ended.
As I’ve stressed in various posts, I take Larry’s point that large changes in cap gains rates, for example, should show up in investment. But empirically, they just don’t. You do, as I stressed in the segment, see timing changes around when investors realize their gains, in order to get ahead of the increase or take advantage of a decrease in the rate. But the investment story just isn’t there in the data.
I know—we’re all overusing Warren Buffett these days, but here’s what he says about it, and I’d listen to him over a few talking heads, even if one of those heads is mine.
“I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.”
Len Burman agrees.