The U.S. capital gains tax rate compares unfavorably with many major economies, trading partners and developing countries, according to a new report by Ernst & Young LLP, commissioned by the American Council for Capital Formation (ACCF). The report compares individual long-term capital gains taxes among 25 major economies of the world and more than half of the countries surveyed have individual capital gains tax rates lower than that of the U.S.

"A low capital gains tax rate has an important role to play in fostering economic growth and playing on a competitive global economic field," said ACCF Senior Vice President and Chief Economist Margo Thorning."The U.S. falls far short when compared to many other countries and stands to be at even greater international disadvantage if capital gains tax rates are increased once the current 15% rate expires in 2010."

ACCF noted that since the historic reduction in capital gains taxes initiated in 1978 by the late Congressman Bill Steiger, lowering taxes on capital gains has been a crucial element in promoting the entrepreneurial drive on which the U.S. economy thrives. Entrepreneurs are a major force for technological breakthroughs, new start-up companies, and the creation of high paying jobs. Many today believe that the '78 cut in capital gains tax rates not only helped make Silicon Valley the center of technological breakthroughs but has also had a strong, positive, and lasting impact on overall investment, economic growth and job creation in the U.S.

The 2003 capital gains tax cuts have also been a boon to the U.S.economy. Extension of the 15% rate is crucial to maintaining the U.S. competitive edge against its major trading partners.

"As the next president and congress face the economic crisis, they must also be mindful of maintaining U.S. competitiveness when it comes to savings, investment and policies which stimulate innovation and entrepreneurship. Raising the capital gains tax rate is the wrong policy to pursue," Thorning concluded.