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Policy Forum: The Taxation of Capital Gains—Principles, Practice, and Directions for Reform

Author

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  • Arun Advani

    (Department of Economics, University of Warwick)

Abstract

The taxation of capital gains is particularly complex given their relatively infrequent receipt, the different ways in which they are generated, and worries about harming productivity. There are theoretical arguments in support of policies ranging from zero rates to high rates of tax on capital. In this article, the author first discusses the impact of capital gains on inequality, which often motivates discussions about how gains should be taxed. He then sets out the principles that determine how gains should be taxed—in particular, how the tax rate should relate to tax rates on labour income. The author proposes that capital gains tax rates should be equalized with income tax rates, subject to provisions to allow gains to be "smoothed" over time and to remove inflation from the tax base. He highlights key transitional issues in moving to such a tax structure. Finally, he discusses specific lessons for Canada.

Suggested Citation

  • Arun Advani, 2021. "Policy Forum: The Taxation of Capital Gains—Principles, Practice, and Directions for Reform," Canadian Tax Journal, Canadian Tax Foundation, vol. 69(4), pages 1231-1250.
    • Handle: RePEc:ctf:journl:v:69:y:2021:i:4:p:1231-1250
    DOI: https://doi.org/10.32721/ctj.2021.69.4.pf.advani
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    Cited by:

    1. Arun Advani & Helen Hughson & Andy Summers, 2023. "How much tax do the rich really pay? Evidence from the UK," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 406-437.

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