Russia Scraps Capital Gains Tax Hoping to Attract Investment

The BBC reports Russia to drop capital gains tax to attract investment

Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said. Mr Medvedev said that in terms of improving Russia's investment climate "we, I hope, are moving forward".

He also said the number of "strategic" firms, in which foreign investment is restricted and which cannot be privatised, would fall from 280 to 41. Mr Medvedev has been promoting the idea of "modernisation", including diversifying the Russian economy.

Also, many investors have been wary of coming to Russia because of corruption and the dominant role the state plays in Russia's business life. Mr Medvedev told the St Petersburg International Economic Forum that long-term direct investment was "necessary for modernisation".

Russia Doing Something That Makes Sense

"OM" who sent me the article writes "At least someone in the world is starting to do something correctly. I never understood why so much creativity is being applied to taxing productive activities and rewarding detrimental, costly and non-productive activities."

Bingo

It remains to be seen if Russia is serious and can be trusted. Nonetheless, the idea is sound. However, a better idea would be to reduce corporate income tax in the US while ending deferral of corporate taxes held overseas.

Existing tax policy encourages large conglomerates to ship jobs and capital overseas while punishing small businesses that do not have the luxury of doing the same.

If Congress wants small businesses to create jobs in the United States, it can start by reducing corporate income taxes here in the US instead of allowing deferral of taxes on gains overseas.

Plethora of Bad Ideas

The US desperately needs less government. Yet nearly every day, someone sends me some harebrained scheme to fix the economy. Today I received two such proposals. One person wanted to put a $5 per gallon tax on gasoline. Another person wanted to create jobs by building monorails.

A $5 tax on gasoline would likely crucify what little manufacturing we have left and would bankrupt millions who barely get by as it is.

A series of monorails would without a doubt add $trillions to the national debt.

Everyone of these harebrained proposals assumes government can tax-and-spend money better than individuals, or alternatively that printing money and cheapening the dollar is a good idea.

Both assumptions are absurd, yet people keep sending me free-lunch proposals or schemes that will require still more taxes and bigger government when it should be perfectly clear the problem is we have too much government already.

I have a better idea. Let's stop ridiculous government programs cold turkey and instead of Congress and the administration deciding how to spend (waste) taxpayer money, let's reduce taxes, fire government bureaucrats, and let taxpayers have more money to spend how they want.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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