Suppose I have $10k in a money market fund earning 2.5%. My earnings on that this year will be $250. Take 28% of that away, and I net $180. But there's no risk.

Now let's say that instead I plunk that money down in investments that are not guaranteed and make a 10% return on those investments. My earnings would be 1000, but the tax is 280, driving my net down to $720.

But think of all the risk I take on! I can guarantee $180, but to get an extra $540 I'm risking losing much more than that. When the cap gains taxes go up, the risk tolerance goes WAY down and investments must return much higher gains to lure investors away from the safe havens in money markets and, for foriegn investors, other markets. This drives the dollar even further down, since foreign investors have even less reason to play here, and hurts our economy as investors pull their money out of equities and stop buying commercial paper.

Companies struggling with inadequate capital and cash flows must cut expenses. And so on.

IF you must increase the capital gains tax, my recommendation would be to begin phasing it in very gently the next time we're churning out a bunch of 52-week highs and record DOW #s as a means of slowing an over-heated economy instead of rate cuts, not now when we may or may not be in a recession. I'm not an economist but I believe that would have the same general effect as raised interest rates but it would hit all sectors at the same time, instead of percolating through markets the way interests rates do. This is another reason to be very gentle with the changes.

If anyone wants to continue this I'd love to in another thread. Don't want to wax boring if folks are ready to move on, or gum up this thread with this more theoretical stuff.