When someone owns an asset (such as a share of stock) that

Chapter , Problem 6

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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 capital gains are taxed, but accrued 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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