While superficially it seems logical that raising the tax rate will increase tax revenue, a closer look shows that such an assumption isn't really true. The general consensus among economists is that the capital gains tax rate is currently at the top or past the top of the bell curve for tax revenue. This is logical because investing in the market, now more than ever, is a gamble. Historically we've been able to rely on steady market growth to justify this gamble. However, the more money the government takes off the top of the profits from this gamble, the less likely everybody is to make the gamble. Thus, we get a model where fewer people invest less money in the market as the capital gains tax rate increases. At some point, the lost money from people deciding not to invest will overtake the money gained from higher tax rates. Currently, most studies suggest that this in the 10%-20% range.
"these data suggest a high degree of sensitivity of capital gains realization to the tax rate imposed on such gains. The revenue-maximizing tax rate implied by these findings is at our below the current 20% level"
