Post-Stimulus, a Capital Gains Tax Cut is the Best Long-Term Confidence Boost

As COVID-19 spreads across the United States, President Trump’s $2 trillion stimulus package is meant to stimulate our confidence more than anything else.

What we needed was liquidity and, by offering high-dollar loans to small businesses and providing direct financial assistance to their employees, the stimulus secured a much-needed cash infusion that enhances financial security across the socioeconomic spectrum. The market’s subsequent uptick is a testament to renewed optimism during these turbulent times.

But a stimulus alone is not enough for the U.S. economy to recapture and exceed its pre-pandemic prosperity. From manufacturing to food service, some of America’s most important industries are decimated, and the unemployment rate is expected to hit double digits in the coming months. Unemployment insurance claims recently hit a single-week high, with more than 3 million new Americans seeking government assistance.

This is inextricably linked to small business confidence — or the lack thereof. After all, small businesses account for 99.9 percent of all U.S. businesses, employing nearly 60 million workers — half of the private-sector workforce. And small business optimism has plunged to its lowest level in seven years, as most small business owners say they can’t operate past the next three months.

As a longtime small business owner with 33 years of experience in food manufacturing and a decade in real estate, I’ve witnessed the downward spiral of the bear market in more ways than one. People are panicking about their investment accounts and slashing spending. Just last week, our real estate clients decided not to purchase a home because they lost over 35 percent.

Where there is a crisis, there is also an opportunity. Small business owners are by nature entrepreneurial risk-takers. When we expect better days to come, we are quick to invest in business expansion and job creation. For many Americans, that investment is the difference between unemployment and job security.

Because of COVID-19, our economic house is so structurally shaken that we require a longer-term approach. We need to unleash private investment.

The best option is an elimination of the capital gains tax (either 15 or 20 percent, depending on taxable income and filing status) to a flat rate of zero percent. Today, the 15 or 20 percent tax on capital assets is a disincentive to invest in the first place.

If the federal government eliminated all capital gains taxes on assets purchased on a given date (for example, April 15 or May 1) and held for at least five years, that investment incentive would add much-needed stability to the stock market. From the 401(k) to union pensions, individuals with assets would see gains beyond the typical 10 percent return.

This wouldn’t only apply to small business owners. Over half of all Americans invest in the stock market, with millions realizing gains.

But the potential impact on America’s job creators cannot be overstated. For Americans between the 81st percent and top percentiles — that is, any household earning more than $130,000capital gains income comprises about 30 percent of all income. These are not just “millionaires and billionaires,” to quote Bernie Sanders.

Of course, a capital gains tax cut would decrease government revenue, but the bite out of the apple isn’t insurmountable either. Since 2010, the federal government has collected an average of $107 billion in annual capital gains tax revenue — about one-tenth of revenue from the federal income tax ($1.2 trillion on average).

Moreover, any decrease in government revenue would be offset by the economic activity to follow — from private investment to business expansion and job creation. Look at it this way: That $107 billion in annual government revenue would now return to Americans’ pockets, ready for individual use. This means investing, spending and saving.

A small business owner like myself could turn those retained assets into a new location or machinery repairs. An employee with a 401(k) plan could see five- or six-figure increases in retirement savings. On a national scale, the possibility of higher capital gains would unleash millions of investors to boost confidence in companies, industries and the economy writ large.

This is a more organic confidence boost than any stimulus package, laying the foundation for an economic resurgence long after COVID-19 has run its course. America’s pre-pandemic prosperity wasn’t the “golden age,” if elected officials seize the opportunity to encourage private investment months, years, and decades from now.

There is a hard ceiling on short-termism. Take a longer-term view on investment, and a new “golden age” comes into focus.


Joseph Semprevivo is the president and CEO of Josephs Sugar Free Syrup. He is also the owner and manager of Joseph’s Premier Real Estate, an adjunct professor of finance, business, real estate, and insurance at Indian River State College, and the author of the best-selling book, Madness, Miracles, Millions.”

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