I believe there is a quick, easy, no-brainer initiative that both Republicans and Democrats could get behind and would have an immediate significant and positive impact on the U.S. economy, create millions of jobs and have zero negative effect on the federal budget.
We are currently in a state where cash is at an all time high on the balance sheets of U.S. corporations, banks and a smaller amount of individuals. But for various reasons, including unstable markets, fears of a double dip recession, and general economic uncertainty, this capital is not being actively invested to grow the economy and create jobs.
In addition, the returns on this capital are, ironically, also at historical lows due to the unprecedented low interest rate environment and fearful investment climate that exists today.
So, we have enormous amounts of capital sitting on the sidelines providing almost no return, in a significantly challenged economy that is in dire need of job-producing capital investment.
Congress passes and the president signs a bill reducing the capital gains tax to 0% on any new capital investment beginning immediately and made through the end of 2012, with certain important stipulations (which I will explain in a moment), if the investment is held for two years or longer. It would not matter how long after the two year holding period the investor realized profits on his investment for the 0% tax rate to apply to the gain as long as the investment was made after the enactment of the legislation and is this type of investment:
- All NEW capital investment made by corporations, partnerships and individuals for newly issued shares of stock in both private and public companies (including start-up businesses) after the enactment of the capital gains legislation.
- All NEW investments made by corporations, partnerships and individuals purchased after the enactment of the new capital gains legislation for all new capital assets.
- All NEW construction real estate, both commercial and residential by corporations, partnerships and individuals developed after the enactment of the new capital gains legislation.
- All NEW capital improvements made by corporations, partnerships and individuals to existing real estate, both commercial and residential, made after the enactment of the new capital gains legislation.
The 0% capital gains rate would NOT apply to:
- The sale of any stock, bond, etc. (private or public) that existed prior to the enactment of the new capital gains tax.
- The sale of any capital asset, including real estate, that existed prior to the enactment of the new capital gains tax.
- Any and all capital gains realized on any asset purchased prior to the enactment of the new capital gains legislation and sold after the enactment of the new legislation.
In other words, this special capital gains tax rate would only apply to new job-producing investments made after the enactment of the legislation. It would not apply to gains on investments that were made prior to the enactment of the legislation.
It would also not apply to the mere exchange of capital assets that existed prior to the enactment of the legislation, but were both purchased and sold after the enactment of the legislation or purchased before and sold after the new legislation.
This simple approach highly incentivizes the movement of the enormous amount of dead capital from the sidelines into the economy in the form of desperately needed new job-producing long-term capital investment with no negative effect on the federal budget and without any windfalls to those who only trade existing capital assets.
Seems like a win all around and one both Democrats and Republicans can get behind in a bi-partisan manner that would also have the residual effect of boosting confidence in Washington, which is as desperately needed as new job-producing capital investment is needed in the economy.