Proposed capital gains tax height raises concerns

Christopher West
Christopher West

Kelly Sloan, The Business Times

A proposed increase in federal capital gains taxes could dampen business investment if implemented, a Grand Junction accountant believes.

“In effect, it would dampen the desire of entrepreneurs and business owners to invest their capital,” said Chris West, a tax accounting principal at Dalby, Wendland and Co.

President Barack Obama proposed several tax increases during his latest State of the Union Address, including an increase in the top capital gains tax rate to 28 percent. The plan would bring the top capital gains rate back to what it was in the late 1990s and early 2000s under President Bill Clinton. 

“The devil, naturally, will be in the details,” West said. But should the tax rate increase, business owners investing capital would pay a higher rate on gains, he said.

West said capital gains and other tax increases could, in tandem with other economic conditions and policies, create disincentives for investors. “These would not be a complete turnoff to doing business. But they certainly would create a disincentive to sell or get into a business.”

The tax proposals were part of an economic program the president termed “middle class economics.” He proposed a simplifying the tax code and eliminating tax incentives and breaks while also proposing a $500 tax credit for married couples holding two jobs. Obama also proposed $320 billion in new revenue over the next decade, mostly from what he called tax increases on the wealthiest Americans. The centerpiece of his tax plan is an increase in taxation on investment income.

Opponents argue that raising taxes on investment income constitutes a double tax since most money invested is first earned and taxed as individual or corporate income and that taxing investment stifles private sector economic growth and job creation.

West also took issue with another proposal to roll back the tax advantages of 529 College Savings Plans. Such plans allow parents to save up to $14,000 a year tax free for a child’s college education and to later withdraw the funds, also without paying taxes on them, to help cover educational costs. The president proposed taxing the withdrawn amounts as standard income.

“These 529s are used at all income levels,” West said, challenging the assertion that plan would target only the wealthiest Americans. “This would be taking away incentives to save for a child’s college education.”