Answer
a) Individuals only pay the tax when they realize a gain. Thus, people are influenced to hold the asset or sell the asset. However, the tax can be avoided by not realizing the gain (not sell the asset).
Work Step by Step
b) If the capital gains tax rate were cut, less tax would be paid by each individual person. In turn, each person might sell more of those assets. An increase in the sale of such assets would increase tax revenue.
c) It is a good idea to tax realized gains but not accrued capital gains. With realized gains, the owner of the asset decides when to sell the asset. With accrued gains, the owner of the asset doesn't have as much freedom in saying when the asset is sold. (The tax may encourage either the owner to sell the asset sooner--to get rid of the tax--or later--to minimize the overall tax paid.)
