I have not discussed taxation much on the blog, so here goes. Rich Kalgaard, Forbes Editor, has a good short history on the topic here. The question is, what shold be the tax rate on capital gains? A captial gain is not the result of work for pay which is ordinary income. A captial gain is the result of investment over time, be it five minutes or five years. You buy stock or piece of real estate, it goes up in value, you sell, you make money. But now comes your silent partner, the US Government. The Government wants to make social policy via the tax code. Liberals want that tax high to continue their class warfare between the so called rich and everyone else (read their voters). Anymore I am not sure what Republicans want but they used to want lower taxes, this was a huge part of Reagan's policy, and Jack Kennedy's while I think about it.
But the counter argument is that low or better yet no tax on capital gains would free up lots of investments that are not being sold simply to avoid the tax. THe current tax rate on cap gains is 15%, have you noticed the stock market soaring? The reason is that investors don't flinch at paying that rate. But raise the rate to 35%, a full one third, and whoa, maybe we better not do anything. The result is that the swirl or speed of transactions slows. Individuals sitting on multi year gains in stocks and real estate are loathe to cash in and give up one third of their gains.
Low tax rate advocates argue that the tax take will be increased if it is lowered as the velocity of transactions increases. High tax advocates claim that 'costs' the government money. The fact is that since Reagan lowered rates in 1986 the stock market has gone from about 2,000 to 13.500. Now all that is not cause and effect, but some certainly is.
What say you, how much of your profit does the govt deserve?
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