…the Taxpayer Relief Act of 1997 left dividend tax rates unchanged – they continued to be taxed at the same rates as regular income in the United States, which provided a powerful incentive for investors to treat the two kinds of stocks very differently, favouring the low-to-no dividend paying stocks over those that paid out more significant dividends.
At least, until May 2003, when the compromises that led to, and ultimately the signing of the Jobs and Growth Tax Relief Reconciliation Act of 2003 would set both the tax rates for capital gains and for dividends to once again be equal to one another, as they had been in the years from 1986 through 1997…
the founding and rapid growth of new computer and Internet technology-oriented companies in the early 1990s, which grew rapidly to become large companies and which as growth companies, did not pay significant dividends to shareholders, provided the critical mass needed for the 1997 capital gains tax cut to launch the Dot Com Bubble.
This week, the New Zealand government announced a special capital gains tax for investments in housing. Specifically, if a buyer sells the house within two years of buying it, and this house is not their home, the investor will be liable to income tax on any profit.
This solution also has been put forward by the left-wing political parties in New Zealand as their solution to the problem of restricted land supply in Auckland and other cities in New Zealand.
The introduction of a capital gains tax is a breakthrough for housing affordability. This solution of using a capital gains tax to dampen demand has been given its chance and it will fail.
Once a capital gains tax fails to make housing more affordable, political parties on the left and on the right can no longer put off confronting real solutions such as major reforms to the Resource Management Act (RMA) to loosen restrictions on the supply of land in the big cities in New Zealand and in particular in Auckland.
If the affordability crisis in New Zealand is demand side driven requiring capital gains tax to temper that demand, why is the affordability crisis so marked in one city? Does that make a case for a capital gains tax only on Auckland or suggest the capital gains tax is trying to solve the wrong problem.