When someone owns an asset (such as a share ofstock) that rises in value, he has an “accrued” capitalgain. If he sells the asset, he “realizes” the gains thathave previously accrued. Under the U.S. income taxsystem, realized capital gains are taxed, but accruedgains are not.a. Explain how individuals’ behavior is affected bythis rule.b. Some economists believe that cuts in capital gainstax rates, especially temporary ones, can raise taxrevenue. How might this be so?c. Do you think it is a good rule to tax realizedbut not accrued capital gains? Why orwhy not?
When someone owns an asset (such as a share ofstock) that rises in value, he has an “accrued” capitalgain. If he sells the asset, he “realizes” the gains thathave previously accrued. Under the U.S. income taxsystem, realized capital gains are taxed, but accruedgains are not.a. Explain how individuals’ behavior is affected bythis rule.b. Some economists believe that cuts in capital gainstax rates, especially temporary ones, can raise taxrevenue. How might this be so?c. Do you think it is a good rule to tax realizedbut not accrued capital gains? Why orwhy not?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
When someone owns an asset (such as a share of
stock) that rises in value, he has an “accrued” capital
gain. If he sells the asset, he “realizes” the gains that
have previously accrued. Under the U.S. income tax
system, realized
gains are not.
a. Explain how individuals’ behavior is affected by
this rule.
b. Some economists believe that cuts in capital gains
tax rates, especially temporary ones, can raise tax
revenue. How might this be so?
c. Do you think it is a good rule to tax realized
but not accrued capital gains? Why or
why not?
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