Top Tax Rates

Obama wants to let the top tax rate on ordinary income return to 39.6 percent, starting in 2013. He also proposes setting the top capital gains rate at 23.8 percent that year.

Advocates of lower investment taxes said the type of changes being advanced by the presidential candidates would encourage riskier investments.

"At 15 percent, the rate is reasonably low," said J.D. Foster, a senior fellow at the Heritage Foundation, a Washington research group that favors limited government. "But if you can bring it down even further, you're going to get some economic benefit from that, unlike most of the economic proposals that are floating around."

Foster, who was an economist at the Treasury Department and the Office of Management and Budget under Bush, said that administration focused on lowering dividend taxes, which had been taxed as ordinary income until a 2003 tax law set the top rate at 15 percent. That same law reduced the top capital gains rate from 20 percent to 15 percent.

'Enormous Bounty'

Eliminating taxes on capital gains would encourage people to look for ways to qualify for the exemption, said Leonard Burman, a professor of public affairs at Syracuse University.

"It would turn what's already a pretty big loophole in the tax law into one big enough to drive a truck through," said Burman, a former Treasury Department official who has written about capital gains taxation. "You create this enormous bounty for making other income look like capital gains, and virtually any income tax shelter is designed to do just that."

Eliminating capital gains taxes would benefit private equity and venture capital businesses. Managers in those industries tend to receive much of their compensation as carried interest, a share of investors' profits that is taxed as capital gains.

Burman said investors would likely sell their holdings and replace them with new, similar assets to eliminate any untaxed gain, particularly if they were concerned that a zero tax rate would be temporary.