House Ways and Means Committee Republicans have released several proposals designed to incentivize economic growth in the wake of the COVID-19 pandemic.
To that end, Congressman David Schweikert (R-Ariz.) has introduced the “Invest Now Act,” legislation that would reduce the capital gains tax rate for certain assets acquired in calendar year 2020. If implemented, this legislation would spur long-term investment and economic growth so that we can continue recovering from the pandemic.
The Invest Now Act creates a capital gains tax “holiday,” or reduced rate, for certain assets acquired in calendar year 2020. These assets are eligible for a reduced capital gains tax rate of 5 percent.
Assets eligible for this reduced 5 percent rate must meet the following criteria:
- Acquired in calendar year 2020
- Held for 5 years or more
- Currently subject to the 15 percent or 20 percent capital gains tax rate
- Not involved in “wash sales,” wherein taxpayers sell an asset at a loss, then buy a nearly-identical asset within 30 days of the original sale.
The capital gains tax is levied on the profit made from the sale of certain assets. Taxpayers must pay a 15 or 20 percent capital gains tax on the difference between the original purchase price of an asset and the sale price of an asset. Former President Obama implemented a 3.8 percent surtax on capital gains, bringing the top effective capital gains tax rate to 23.8 percent.
The capital gains tax is double taxation, as it hits income that has already been subjected to the individual income tax. When taxpayers reinvest income into the economy, it increases economic productivity and growth, leading to the creation of more jobs and increasing wages.
In order to better encourage long-term investment and economic growth, lawmakers should look to reduce or eliminate this double taxation wherever possible. According to the Tax Foundation, outright elimination of the double taxation of capital gains would increase household income across the board by an average of 3.8 percent, would lead to 2.7 percent higher GDP, and would create more than 500,000 new jobs.
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By cutting capital gains taxes, the Invest Now Act will help encourage new investment, leading to much-needed economic growth, more jobs, and higher wages. With lawmakers looking for policies to regrow the economy from the COVID-19 pandemic, they should be sure to include this legislation in any forthcoming Coronavirus relief package.