Thomas Hungerford, an analyst with the Congressional Research Service, reports that capital gains tax cuts are by far the largest driver of income inequality. Studies show that the income of the top 1 percent of Americans has been increasing dramatically. Most Americans depend on wages that are subject to a graduated tax, but capital gains have a rate cap, which is currently 20 percent.
Billionaire Warren Buffett advocates a higher tax rate for the wealthy. He has argued that investors will invest, regardless of what portion the government takes out of their profits, and that we shouldn’t worry about using the tax code to encourage investment. Instead, he suggests, we should worry that a lower capital-gains rate is unfair to those who make most of their income from labor, which is taxed at a higher rate. It’s this discrepancy in the tax code, that allows billionaire hedge fund managers to pay a lower tax rate, than a construction worker.
In 2012, the top 1 percent received 47 percent of all capital gains. The money is going to the very top, because capital gains tax rates are lower than the tax rates of average Americans, and this has led to the top 1 percent of Americans’ income nearly doubling.
Capital gains have been the golden goose that Republicans refuse to give up. Congressional Republicans have protected the 1 percent from tax increases for decades. Protecting the top 1 percent from higher taxes is a long-term investment for the Republican Party, because the 1 percent donate a tremendous amount of money to their party. It’s the reason Republicans are willing to let the sequester cuts kick in, and allow the working poor and middle class of our country suffer. Apparently, the Republican Party must remain the party of the very rich in order to survive.