People talk about the low capital gains tax rate as necessary to "jobs," which blows past (or deliberately obscures) the actual history of that low rate.
The dirty little secret — it wasn't always low, and we did just fine, thanks.
Paul Krugman produces this handy chart from data available from the Tax Policy Center.
Krugman then comments (my emphasis):
The current very low rates didn’t happen until 2003; in fact, long-term capital gains were taxed at close to 30 percent from 1986 through 1997, when Clinton cut a deal with Republicans to get an expanded earned-income tax credit. And dividend income also only started receiving privileged status in 2003.About that Clinton trade, do you think he got taken?
Krugman closes with the comment in the headline: "It’s not a time-honored principle; it’s a Bush-era innovation". Nothing magic about that 15% rate; the magic is in the bribery (lobbying money) that bought it.
(Arguments for and against preferential tax treatment of capital gains can be found here.)
I'd like to add one more point. Click through to the table this chart comes from. Now take a look at the data itself, especially Part 1, the second column ("Total Realized Capital Gains"). This is the amount, in millions, declared as capital gains on tax returns starting in 1954. The first figure is a little over $7 billion dollars.
Now scan down that column. As you would expect, the numbers increase; this is the big post-war boom after all. Pause at tax year 1986; there's a huge upward spike, then back down. I understand why 1987 would be lower than 1985; I just don't know why 1986 spiked so high.
Keep scanning down, and pause at 1995–1997. Two big jumps, this time permanent. It starts before Clinton brought the rates down (see Column 6 for those rates), but clearly reflects the conversion of much of the income of the very wealthy (the top 0.1%) to capital gains.
Finally, stop at 2007, the year before the 2008 crash. If I read that number right, the total capital gains declared is just shy of $1 trillion. A stunning amount of money, when you consider in how few hands this income is concentrated.
(By the way, note that the effective rate on capital gains in Column 4 is always lower than the maximum rate in Column 6. What the effective rate would be on Romney's entire return is anyone's guess, but I'd start the bidding pretty low, perhaps at zero.)
Offered for your amusement,