The basic structure of the book is quite logical. Realizing that most readers will not be familiar with the intricacies of the U.S. tax code, Burman begins with two chapters describing the tax treatment of capital gains and the possible sources of capital gains. This in itself is no mean feat, for it requires distillation of hundreds of pages of tax code. One source of complexity is that the tax code makes numerous distinctions among different kinds of capital gains. Gains from home ownership are largely exempt from taxation, for instance, while gains on assets held for over a year are taxed at a lower rate than assets held for less than a year. The middle third of the book examines issues that are central to debates among elected officials and policy experts. Chapters 4 and 5 summarize the impact of capital gains taxation on aggregate savings, investment, and capital allocation. Chapter 6 shows which individuals realize capital gains and which benefit most from their favorable tax treatment. The remaining three chapters are more proscriptive in which the author analyzes several proposed changes in tax policy and offers his own recommendations.

Throughout the book, Burman raises several defenses of existing or expanded tax preferences for capital gains and then shows why those arguments are largely unpersuasive. For instance, do lower taxes on capital gains enhance national savings? Not much, because most forms of savings do not produce capital gains, many capital gains are not taxed, and because the additional private savings are offset by lower public savings in the form of lower tax revenues. Historically, cuts in capital gains taxes have not been followed by increases in national savings. Do lower taxes on capital gains reduce “lock-in” effects, in which individuals hold on to appreciated assets for too long so as to avoid taxation? Only for investors who rely heavily on a single asset (e.g., small business owners and family farmers), who constitute a minority of those who realize capital gains. Would lower capital gains taxes encourage risk-taking? Again Burman argues that the benefits are minimal, in part because most investors in new businesses are not subject to the individual capital gains tax. Another reason is that lower rates can also foster the creation of distinctly unproductive tax shelters. Finally, to those who point out how many ordinary citizens hold capital assets, the author demonstrates how both capital gains and the associated tax benefits are heavily concentrated among the affluent.

Though Burman does not say so explicitly, all of this evidence strongly suggests that recent tax changes favoring capital gains, especially those embodied in the Taxpayer Relief Act of 1997, were an expensive mistake. Instead, he reserves his judgments for alternative methods for calculating and taxing capital gains. Of these, perhaps the most interesting are his opposition to indexation of capital gains and his support for limiting the exclusion of taxation on capital gains at death. For every proposed change, however, the author is careful to trace out the obvious and not-so-obvious effects of reform, and to make exceptions where needed.

This book will appeal primarily to readers with an interest in policy debates and an appetite for numbers and economic analysis. It is in the style of an extended policy brief, with much of the text designed to explicate a series of figures and tables. The author, a former analyst with the Congressional Budget Office and now Deputy Assistant Secretary of Tax Analysis for the U.S. Treasury Department, is convinced that statistics lie at the heart of debates over capital gains taxation. Little attention is paid to the role of political ideology or of major corporations and financial institutions in these debates. That silence may bother some readers (including this one), and others may be concerned by how quickly Burman summarizes and dismisses some of the key arguments in favor of the status quo. Cross-national comparisons are few and far between. Nevertheless, those dimensions can and should be developed in subsequent scholarship. The bottom line is that this is an important and accessible book about a technically difficult subject, and it deserves to be read by anyone interested in public finance or tax policy.