The Capital Gains tax red herring

Republicans are constantly arguing the way out of our economic mess is to reduce or abolish the Capital Gains tax so investors will take their money and spend it on building jobs.

A country like India, a poor country with an extraordinary opportunity for development to bring its population up to rich world standards of living has relatively little capital. It has to rely on foreign capital. It makes a great deal of sense for India to have no capital gains tax as their need for capital formation outweighs the risk of instability.

The United States is awash in Capital. Trillions of dollars in assets are locked up in pension funds, mutual funds, private equity, all looking for better returns than everyone else. We cut the Capital Gains tax in 1996 to current levels. Since then we have seen bubbles that rose and burst in equities, commodities, real estate, and almost any other asset someone thought they could make money on, culminating in the economic morass we now find ourselves in. Our problems are many but lack of capital is not a problem, it is a red herring that diverts us from more productive problem solving.