In response to:

Prophets and Losses: Part II

Ned6 Wrote: Feb 06, 2013 10:48 AM
It should be obvious that tax collection directly related to capital gains will go down when the capital gains rate goes up, since the tax is based on accumulated gain which is negatively affected by the change in rate. For example, let's say you bought stock for $75,000 and it has increased to $85,000 at the 15% capital gains rate. At that rate you effectively own 85% of the stock and the government owns 15%. If you raise the rate to 20%, the value of the stock should fall to $80,000, since you now only own 80% of the stock. Sale of the stock is now based on an accumulated gain of only $5,000 vs the previous $10,000. While the tax rate has gone up 33%, the accumulated gain has gone down by 50%.

Editor's Note: This column is part II in a series. Part I can be found here.

People on both sides of tax issues often speak of such things as a "$300 billion tax increase" or a "$500 billion tax decrease." That is fine if they are looking back at something that has already happened. But it can be sheer nonsense if they are talking about a proposed increase or decrease in the tax rate.

The government can only raise or lower the tax rate. Whether the actual tax revenues that the government will collect as a result will go up or...