The Effects of Capital Gains Rate Uncertainty on Realization

53 Pages Posted: 4 Apr 2019

See all articles by David Kamin

David Kamin

New York University School of Law

Jason Oh

University of California, Los Angeles (UCLA) - School of Law

Date Written: April 3, 2019

Abstract

Taxpayers should expect capital gains rates to fluctuate in light of frequent historical changes and the current divergence of rates preferred by Democrats and Republicans. This paper is the first to model the effect of such rate uncertainty on the realization incentives of asset holders and finds those effects to be potentially large. There are several implications. First, rate uncertainty may alleviate the lock-in effect of the realization rule when rates are low and exacerbate lock-in when rates are high. Second, there could be significant inaccuracies extrapolating the elasticity of capital gains realizations measured at one rate to another. Third, some policy solutions aimed at addressing distortions created by the realization rule may not work as well as expected.

Keywords: uncertainty, capital gains, realization

JEL Classification: D84, H25, H26

Suggested Citation

Kamin, David and Oh, Jason, The Effects of Capital Gains Rate Uncertainty on Realization (April 3, 2019). UCLA School of Law, Law-Econ Research Paper No. 19-06. Available at SSRN: https://ssrn.com/abstract=3365305

David Kamin

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Jason Oh (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

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