I am in favor of passing Bowles-Simpson, and I would defer to them how to revise tthe tax system, but the tax system is badly out of whack and needs revising quickly and thoroughly. If people don’t respect the tax code, if they perceive it as unfair, they won’t pay. Everybody will be a tax cheat, as they are in many southern European countries, like Greece and Italy. That said, I wonder if it would be better to eliminate the mortgage deduction, which affects a broad portion or the population, or the capital gains tax rate, which lowers taxes mainly for the rich.
A Wall Street Journal article has some specific numbers for capital gains tax receipts in fairly recent years. In 2003, receipts were $51.3 billion. In 2007 they were $137.1 billion. A rough estimate is that if these rich people (and they are almost all rich) paid at the regular tax level (35%) rather than the current capital gains level (15%) the receipts would roughly double, i.e., to $100 billion in 2003 and $250 billion in 2007. This is very rough, because rich people hold some assets for a long time, and only sell them when the capital gains tax is relatively low. If there were no special capital gains tax, sales of assets would smooth out; with they special, lower tax they tend to bunch up either just before the rate goes up, or just after it comes down. But it seems like you could estimate that the lower capital gains rate cost the US treasury about $100 billion per year during the first decade of the 2000s, or about $1 trillion over the last 10 years.
