Savings Disincentives Stifle Vigorous Capital Markets
Just as certain changes in the tax code would promote savings, investment, and capital formation, other changes would adversely affect these goals. Tax increases on capital markets have three adverse effects: limiting the range of alternatives available for those companies seeking to raise funds; increasing taxes on issuers and investors; and, stifling savings and investment.
Congress is wise to refuse any proposals to:
- Limit the dividends-received deduction;
- Tax a shareholder’s receipt of tracking stock in certain distributions and exchanges;
- Require the accrual of income on a forward sale of stock;
- Disallow an interest deduction on debt allocable to tax-exempt obligations; and,
- Require current accrual of market discount by accrual-method taxpayers.
Congress has also rejected several legislative initiatives directed generally at “corporate tax shelters” because they risked imposing substantial and unwarranted new costs on many wholly legitimate capital market transactions.
The Treasury Department similarly needs to substantially modify its tax-shelter regulations so they apply only to cases of tax wrongdoing.
Among the most harmful of all savings disincentives would be the enactment of a securities transfer excise tax (STET). A STET would impede savings and investment in the United States by distorting investment decisions, impairing liquidity of the U.S. capital markets, and diverting trading to foreign markets that do not impose such a tax.