The real problem with taxing capital gains is that the gains aren’t indexed for inflation. Let’s say I buy a stock that appreciates 6% per year over 10 years. Sure I get taxed at a lower rate, but if inflation is 4% per year, then I’m really only seeing a gain of 2% per year. I would have no problem eliminating the capital gains tax, treating all income equally, provided you could index for inflation.
Don’t you get a break on capital gains if you are in a lower tax bracket? I was reading up on the tax code recently, but had a tough time understanding it.
That’s an interesting viewpoint and I’ve never heard it quite put that way. Would you extend this to any investment income like interest on a savings account? It seems to me that part of the reason why people invest is to combat inflation and so inflation should be considered when you invest.
It also seems like it would make calculation of the inflation rate for tax purposes kind of complex. It’s a cool idea though.
Also, what if deflation occurs- is that considered extra taxable income?
I don’t understand… How will this affect a $2000 ameritrade account unless you’re cashing out. If you’re day trading you get hit by regular income tax - Long term capital gains don’t hit until you realize the profit. How is that preventing people from getting in? If anything it encourages people to leave it in and let it grow. Or am I misunderstanding something here?
Fine then, I’m sure that details can be worked out to make it attractive for the middle class to engage in stock trading or house flipping or what have you. The fact remains, however, that if somebody is living entirely on their stock portfolio and making 200K/year that person should NOT be taxed at 15% and to say that such a scenario is either equitable or farfetched is disingenous.
The point is, was and always shall be that the tiny fraction of people who make a shitload of money (3.4% make more than 200K/yr) no matter what sources they derive their income from should NOT, under ANY circumstances, be paying a lower percentage in taxes than someone making less than that amount and indeed there is a valid argument to be made that those making more than 200K/year should be paying a much higher percentage of taxes overall than those who make under that level. Anyone who says otherwise is either making a shitpot of money, in which case I have my doubts as to the purity of their motives, or they are the kind of person who’ll kiss the rapist after the deed is done.
Because then the return is reduced. It hurts me as the small investor more, because then the money performs even less. This matters more to me with my $ 2000 than it does someone working in millions of dollars in aggregate. It disincentivizes me investing, whereas with the wealthier it doesn’t, because what else are they going to do with that money?
But you don’t realize the return until you cash it out. You don’t get taxed on your $2000, you’ll get taxed on whatever you decide to monetize. And that’s foolin-around-with money or retirement money (I would think anyway). So moving it up to a normal middle or middle-upper tax rate shouldn’t be a big deal. Treating it like the rest of your income shouldn’t ‘hurt’ you at all. Infact treating it like it was in the wealthy bracket shouldn’t hurt you at all either - since you’re still making money and all.
But the reason I invest it in the first place is the hope of a higher return on it than I would achieve otherwise.
Let’s break this down for the smaller investor. Middle class two kids.
What should they be doing with their money? … after needs are met I mean.
Max out on the IRA or other retirement vehicle. Tax protected.
Fund the kids 529 college funds early.
Keep a liquid reserve.
Then they can decide what to do with more. Say that $2000. Spend on luxuries and fun or invest. Let’s assume they decide to invest. Savings acct or stocks? You’re telling me that a marginal increase in the capital gains tax rate will effect their choice more than it would someone who has $200K in his account. That that is the issue more than the trading fee or perceived market or individual stock volatility at that level?
Sorry I don’t get it either.
Actually, I have a serious question about the capital gains thing. Charlie Gibson made what I’m sure he thought was a devastating point, that 100 million Americans own stock. But my guess is that most middle class Americans who own stock purchased it through IRAs, 401(k)s or other such plans. But in those cases, your returns aren’t subject to capital gains anyway. Does anyone know how many Americans own significant amounts, or any at all, stock outside of retirement accounts?
Define significant?
Well, let’s start with any. How many Americans own stock outside of their retirement accounts?
As for significant, I dunno. More than $5K?
If interest is paid on a monthly basis, you’re unlikely to have much of an inflationary effect. You can put that money back into an investment or spend it. But capital gains on things like stocks, houses, or collectibles are often strung out over many years.
If you limited the increment to 1 year, then the IRS could just publish the relevant data on their web site and in the tax brochures.
I’ve never thought about that since I’ve never experienced deflation. 
But I guess it would make sense.
A free pass? A free pass? Are you fucking kidding me? We’ve gone over Wright so many times it’s beyond ridiculous, and saying America deserved 9/11 because of our wickedness (which I believe Falwell said, whose endorsement McCain sought, after denouncing him in 2000) is a far cry from saying that the people who engineered it were strongly influenced by our actions in the Middle East over the last few decades.
per household or individual? My wife and I own stock in excess of $ 5k and we’re certainly not rich.
I’m not denying that people own stock, and I didn’t want to descend into the particulars of what significant meant, which is why I didn’t actually specify a number. My main point is that I’m 95% positive that the figure of 100 million Americans owning stock is a bit of a red herring when it comes to the capital gains tax. But I’m not sure.
Hee! Thanks.
That would work for me, for anything that’s been held longer than a few months.
If you bought a stock 30 years ago for $1000 and you sell it for $7000, but $1000 30 years ago is equivalent to $5000 today, you should only have to pay tax on the $2000 real gain in present-day dollars, but there’s no reason why you shouldn’t pay that tax at the regular rate.
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I confess I’d love to see a tax that de-incentivized (if that’s a word) using the market as a casino, playing the short-term ups and downs. It would be simple: just tax capital gains at the higher of regular income and (99-n)%, where n was the number of days you’d held the asset.
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But you will be paying that somewhat larger tax with inflated dollars (down the road). Which are worth less than the dollars that you bought the investment with (in constant terms). So I haven’t seen why you bear a larger burden than a person who holds for something less than a year. This gets twisty for me pretty quick, and it only serves a purpose if you want to actually incent people to hold stocks and real estate longer than they currently do. The first year of this plan you would see relatively fewer people hold a stock for ten or eleven months but you’d see a lot more people dumping after a year.
To realize your goal, it makes more sense just to lower the CG tax rate overall than to get inflation involved. I think for the benefit of the market we actually want people encouraged to ditch an investment when they think that it has reached its highest value, not when they can realize tax advanatages from the sale. I realize that this is not ideal under the current system but it’s better than one in which the value of an asset fluctuates artificially according to the amount of time you have held it.