Capital Gains Benefits
More than 90 percent of the benefits of the lower tax rate on capital gains go to the top 20 percent of taxpayers, with almost half of the benefit going to the top 0.1 percent, according to the Tax Policy Center.
"As I read between the lines of the plan, the cap gains and dividend rates are likely to rise," said Alex Brill, a research fellow at the American Enterprise Institute, a Washington policy center that supports free enterprise. Brill was chief economist at the House Ways and Means Committee under Republican Chairman Bill Thomas.
Equalizing the rates for capital gains and wage income would mirror the result of the last major overhaul of the tax code in 1986. Later increases in the income tax rate and cuts in the capital gains and dividends rates created today's gap.
Burman said the change would discourage tax shelters that take advantage of the gap between tax rates on wages and investments.
'Rich People'
"If you can make wages look like capital gains, you've saved a lot of money, and that's what rich people do," he said.
Mark Bloomfield, president and chief executive of the American Council for Capital Formation, a Washington group that advocates lower taxes on investments, said the congressional conversation is focused too narrowly on lowering tax rates rather than on what should be taxed.
"Don't put taxing savings and investment in the same category as special-interest provisions," he said.
The senators' proposal also calls for the Finance Committee to create a territorial tax system, under which U.S. multinational companies wouldn't face taxes on income they earn outside the country. The U.S. Chamber of Commerce and other business groups have been urging Congress to make such a change.
Overall, the senators behind the plan are claiming to raise $1 trillion in new revenue even as they cut taxes by $1.5 trillion by using different yardsticks in the same plan.