Different perceptions abound when looking at the aspect of tax cut capital gains. It is quite debatable depending on your perception whether or not tax cuts would increase capital gains or vice versa. The impact of government actions towards the performance of the economy can however not be underestimated as governments' decisions on tax rates directly impact on personal income and even on the investment atmosphere as a whole.
The main objective behind tax cuts is to influence increased capital gains and spur further economic growth. The burning question however is whether it is the increase or decrease in the tax that spurs economic growth. Let's look at a situation where a government implements tax cuts and as a result investors exploit the opportunity to increase their investments systematically, although such a move may increase the overall economic growth from a particular point of view, there is also the potential fear that some investors may adopt a greedy attitude and decide to rapidly increase production to capitalize on the tax cuts. This may even see such investors compromising on the quality of their products as long as they are in a position to make some profits to starch away.
What is the most rational approach?
As much as the economy may at times need some stimulus from the governments in the form of such tax cuts among others, it would be quite against the basic principles of a free market policy for the governments to keep shifting tax policies as a stimulus towards economic or investment growth. If the market finds its own balance, then traders will have an ample time adjusting naturally as the market grow or shrinks at normal rates. That analogy not withstanding, it is obvious that tax cuts are there and traders and workers must deal with its resultant effects.
Advantages of tax cut capital gains
In spite of the numerous theories that have been advanced in a bid to depict tax cuts on capital gains as a mission in futility, the fact of the matter is that tax cuts play a very major role in so far as inspiring investment. A closer look may actually reveal that taxing capital gains could as well be a blatant case of double taxation and a major deterrent to investment given that governments always tax income tax. It is my sincere belief that capital gains are clearly part of income tax and therefore go through the same process as other sources of income. In fact to be more precise, tax on capital gains should just be scrapped off all together in order to inspire investment.