Optimal Retrospective Capital Gains Taxation

Date of Award

2010

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Coe, Richard

Keywords

Capital Gains, Taxation Lock-in Effect, Step-up of Basics

Area of Concentration

Economics

Abstract

This study surveys the present debate surrounding optimal capital gains taxation within the greater context of the United States individual income tax. Of particular interest is the requirement imposed of taxation upon realization, or an effective deferral of liability owed under a cash-flow methodology. This examination includes consideration of nature of capital gains as income, certain economic consequences of its taxation, and its inclusion, or exclusion, of our system�s broader social objectives. The approach applied relies on identifying certain issues within the current tax code and comparison of its mechanism for the calculation of tax liability to that Auerbach proposed in his 1991 work, Retrospective Capital Gains Taxation. This alternate scheme involves the imputation of growth over the holding period of the asset and charging the relevant compounded interest owed on those accrued gains as deferred payment. We also consider certain advantages and drawbacks inherent in Auerbach�s proposal and its overall treatment of capital gains as income. Finally, we conduct a simple application of Auerbach�s prescribed mechanism using the Internal Revenue Service�s Study of Capital Assets data estimating the relevant statistics concerning assets reported on the Schedule D for the tax years 1997 through 2003. The work seeks to summarize the ongoing debate and evaluate the various compromises between the social criteria and economic efficiency, implicit in all taxation but crucial to the taxation of capital income.

Rights

This bibliographic record is available under the Creative Commons CC0 public domain dedication. The New College of Florida, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.

This document is currently not available here.

Share

COinS