In response to:

The Invincible Lie: Part II

Ned6 Wrote: Jul 13, 2012 8:36 AM
Changes in the capital gains tax rate must not be conflated with changes in changes in the income tax rate. Whereas an increase in the income tax rate results in changes in behavior, changes in the capital gains rate result in an immediate change in value. At 15%, equity is effectively 85% owned. An increase to 25% results in an immediate loss of value (12%, or [75%/85%]), because future after-tax yield on the stock has declined. While a change has only a one-time effect on the price of existing shares, it has a dramatic impact on new business creation and equity based business expansion. And, since a 12% decrease in price has a far greater impact on accumulated capital gain, raising the rate destroys the capital gain taxable base.
Kenneth L. Wrote: Jul 13, 2012 8:45 AM
Ned, thank you for making this point. I've argued the same thing. It seems obvious that when a board of directors or an investment group looks at an opportunity, and they calculate their "hurdle rate," that a change in tax burden would have exactly the effect you describe. I've seen arguments here that they have no such effect. Having been involved in discussion of new marketing initiatives, and having reviewed proposals after they're evaluated by the finance people, I assure you that you are exactly right. New investment will immediately be suppressed by in increase in the tax rate. It changes the risk/reward equation dramatically.

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

Nothing produces more of a sense of the futility of facts than seeing someone in the mass media repeating some notion that has been refuted innumerable times over the years.

On July 9th, on CNN's program "The Situation Room" with Wolf Blitzer, commentator Gloria Borger discussed President Obama's plan to continue the temporary extension of the tax rates established under the Bush administration -- except for the top brackets, where Obama wanted the tax rates raised.

Ms. Borger said, "if you're going to lower the tax...