# What should the capital gains tax be? **URL:** \ **Category:** Great Debates\ **Created:** [July 15, 2016, 11:03am UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967 "2016-07-15T11:03:49Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 18, 2016, 12:56pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/81 "2016-07-18T12:56:52Z")
> [@UltraVires](#): > > I don’t see a problem with the “rich”. The problem is a system in which 47% of people do not contribute to the federal income tax. Many of those 47% actively take money from the feds in the form of various social welfare programs. It is taking longer than we thought. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 18, 2016, 2:32pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/82 "2016-07-18T14:32:04Z")
> [@Some\_Call\_Me.Tim](#): > > No stock of which I am aware entitles the holder to a share of the “income stream” of a corporation. Actual stocks may pay dividends, but they’re not strictly proportional to the income, and I don’t see how that could possibly work without taking the corporation’s costs into account. If I own a cow, I own the stream of milk that squirts from her udders. That does not mean I am “entitled” to a guaranteed squirt on a regular basis, and it also doesn’t mean that a perfect proportion of the energy ingested by the cow in the form of wild grass on the open meadow must by natural law end up eventually becoming cow juice. Nevertheless, if there happens to be milk, then obviously that milk came from the same stream of energy that started as plant material, and I have a claim on it. I may wish the cow to retain her earnings as an investment, so that there are eventually more cows. If that happens, I should perhaps expect no milk in the interim in the anticipation of a potentially greater stream in the future. I can guide all of these choices. Because I own it. Ownership of shares of a corporation is a claim on a stream of income. Nothing in that sentence implies that owners are “entitled” to a guaranteed existence of the stream in guaranteed amounts on guaranteed days. Sometimes companies are in trouble and need all their energy just to become healthy again. Or even when they’re healthy, it can be prudent to retain earnings as an investment in hope of higher share prices and greater dividends and more dairy products in the future. So we can ask: Where do those dividends come from? How are they funded? Well, that’s generally pretty obvious. Dividends are funded out of the original earnings of the company. But this does not imply that there is any guarantee that dividends must be a perfect proportion of those original earnings. The earnings might be retained, or they might be re-invested, or they might be assigned as dividends, but – and here’s the important part – they can’t be pissed away for no reasonable purpose. The entire reason why shareholders have the right to sue when management is neglectful of the funds under their control is that shareholders have a stake in those funds, _regardless of whether dividends are currently being paid_. They have a right to sue because they have a claim on those earnings, which must be used in a responsible way, whether that be paying reasonable costs or re-investing or retaining the earnings internally for tax reasons or whatever. Shareholders don’t literally own a factory in Bhopal, but they do in fact have a very real and legally enforceable stake in the earnings of the company. Because they own it. > [@](#): > > Fundamentally the desire here seems to be to be counted as an owner for purposes of taxation, but not as an owner for all other purposes. To allow this would be unfair. I’m not sure where the “desire here” is supposed to be. I didn’t evince any such desire in my post. You are again making a political point written in response to a post of mine which made only definitional points. Maybe you were just using my post as a spring-board for deeper observations, which would naturally be fine. It’s just a little confusing from my perspective. But I don’t disagree with your ideas on fairness. I think you make solid points. If a corporation is considered a legally distinct entity, it makes some real sense that it be taxed in a legally separate way. ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [July 18, 2016, 2:52pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/83 "2016-07-18T14:52:28Z")
> [@Peremensoe](#): > > Obviously not. The last guy will be in the $1-million bracket every year, the others only once. Well, yes, but that’s missing my point. Why should we tax someone who sells a business in one year like someone who makes $1 million a year, and someone who slowly sells off his stock portfolio over his retirement at much lower levels? ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [July 18, 2016, 3:22pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/84 "2016-07-18T15:22:57Z")
> [@Fear\_Itself](#): > > It is taking longer than we thought. If you squeeze the stone hard enough, I promise it’ll bleed eventually. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [July 18, 2016, 3:46pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/85 "2016-07-18T15:46:55Z")
> [@iamthewalrus\_3](#): > > Well, yes, but that’s missing my point. > > Why should we tax someone who sells a business in one year like someone who makes $1 million a year, and someone who slowly sells off his stock portfolio over his retirement at much lower levels? For the same reason we tax people on their yearly income, not their lifetime income. ---
**Author:** ![Some\_Call\_Me.Tim](https://avatars.discourse-cdn.com/v4/letter/s/439d5e/32.png) [@Some\_Call\_Me.Tim](https://boards.straightdope.com/u/Some_Call_Me.Tim)\ **Post date:** [July 18, 2016, 3:55pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/86 "2016-07-18T15:55:49Z")
> [@Hellestal](#): > > Shareholders don’t literally own a factory in Bhopal, but they do in fact have a very real and legally enforceable stake in the earnings of the company. > > Because they own it. Yes. Shareholders own a legally enforceable contract that requires the corporation to pay them the amounts specified by that contract. If that’s what you meant by ‘it’ then we’re in agreement here. The part that I don’t understand is why some people think that this particular type of contract is somehow different from other legal obligations the corporation may have to give money to other individuals. If I exchange widgets that cost me $1m to manufacture for a contract by a corporation to give me $2m in six months, I would expect to pay income tax on the profit when the corporation fulfills its contract. If I exchange $1m for a contract by a corporation (‘stock’) to give me money in the future based on some specified formula, I should expect to pay income tax on the profit when the corporation fulfills its contract. ---
**Author:** ![Peremensoe](https://avatars.discourse-cdn.com/v4/letter/p/ce7236/32.png) [@Peremensoe](https://boards.straightdope.com/u/Peremensoe)\ **Post date:** [July 18, 2016, 4:00pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/87 "2016-07-18T16:00:22Z")
> [@iamthewalrus\_3](#): > > Why should we tax someone who sells a business in one year like someone who makes $1 million a year, and someone who slowly sells off his stock portfolio over his retirement at much lower levels? Because the first _is_ reaping a far higher income for that one year. Presumably his tax bracket will be lower than the other guy’s, in all the other years. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [July 18, 2016, 4:19pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/88 "2016-07-18T16:19:07Z")
> [@Ruken](#): > > Well there you have it folks. This poster thinks you don’t own the assets of a company that you own and control in its entirety, just because your liability is limited. You’re both right on this issue. When I refinanced my home mortgage this February, I was asked to list every financial asset I owned, from bank accounts to stock. The money in my SMLLC’s account was NOT to be included in that list. The SMLLC itself was the asset to be listed, in a section that only asked about annual income, not current dollar value. So there you have it: The mortgage underwriters agree with Tim that the SMLLC’s assets do not belong to me. However, from a practical standpoint, I can take as much of that money out of the company as I like any time I like. From that perspective, you’re right. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 5:45pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/89 "2016-07-18T17:45:55Z")
> [@Fear\_Itself](#): > > The corporation’s income is not the shareholder’s income. It’s like saying the money spent by the government is the taxpayer’s money. It isn’t. It is the governments money. So what is the difference between income earned through a C corporation and income earned through an LLC? Nothing. You can either get comfortable with double taxation of corporate income or you can fool yourself into thinking that it is not actually in fact double taxation (and to be clear, not all of capital gains falls into this category). ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 5:48pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/90 "2016-07-18T17:48:42Z")
> [@Ruken](#): > > It sounds like you don’t adjust your risk profile based on expected returns. What do you mean? Normally you adjust expected returns based on the risk not the other way around. Or did you mean something else? > [@](#): > > Good luck. Back in reality, I certainly already keep money under the mattress, so to speak, and would revaluate my exposure if the government were to keep more of my returns. So you would rather keep your money under your mattress than earning a risk free rate of return somewhere? I keep cash on hand but that is a liquidity issue not related to the tax rate. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 5:52pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/91 "2016-07-18T17:52:48Z")
> [@Chronos](#): > > Is the corporation a separate entity from its owners, or is it not? If it is, then we tax the transfer of wealth between those entities. If it’s not, then there are a whole lot of other areas of corporate law that we need to revise, too. But it makes no sense to argue that it’s separate when that’s beneficial, but just the same entity as the owners when that’s beneficial. > > And what do you mean by “income stream”? That company probably made its money by selling some product, and sales tax was paid then. Is that part of the same “income stream”? What about whatever the buyer did to get that money? Is that the same “income stream”, too? Why not? We do not allow a deduction to corporations when they pay out a dividend. It is about the only thing that a corporation cannot deduct. The same income is being taxes twice and whether it meets your political semantics test or not, tax professional frequently refer to the taxation of income at both the entity level and shareholder level as double taxation without any hint of partisanship. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 5:57pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/92 "2016-07-18T17:57:45Z")
> [@Fear\_Itself](#): > > Here’s cartoon explanation that may be clearer: > > [http://web.acsalaska.net/~fmurtley/doubletaxation.gif](http://web.acsalaska.net/~fmurtley/doubletaxation.gif) I know its fashionable to use banks as bogeymen but the bank is in fact the device through which the shareholder is earning the income. Lets say the plumber in B owned his plumbing business through a corporation. Now lets insesrt a step B.1 where he withdraws the net income earned in his plumbing business to buy those CDs and got taxed on the withdrawal of that income. THAT is double taxation. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 6:01pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/93 "2016-07-18T18:01:13Z")
> [@Some\_Call\_Me.Tim](#): > > This is false. If I personally owned a chemical manufacturing plant in, say, Bhopal, and there was a horrible disaster that killed thousands of people and crippled many more thousands, those people would have every right to sue me for every dime I owned, even if that amount were well in excess of the value of the plant itself. > > If I own shares in a corporation that owned that plant, my liabilities would not exceed the value of my shares, absent unusual circumstances. > > Why? Because stockholders **don’t own** part of that plant. Ownership share in a corporation is fundamentally not the same as ownership of part of the things the corporation owns. > > You have every right to not use a corporation and own things directly, or even for a group of people to personally own portions of a property. But if you do that you get neither the advantages nor the disadvantages of the corporate structure. > > The rest of your argument falls apart because of this fundamental misunderstanding of what a corporation is. Do you know what an LLC is? Do you know what a limited partnership is? These are also situations where there is limited liability and yet there is not a second layer of taxation. Are you sure that it is Hellestal and me that have a fundamental misunderstanding of what a corporation is? > [@](#): > > Does anyone have any examples of actual double taxation, as opposed to legally distinct entities such as a corporation and its shareholders being taxed separately? An LLC and limited partnership are also legally distinct entities. Another example of double taxation can occur when a US taxpayer earns money in a non-treaty country (i.e. a country with which the united states does not have a tax treaty). ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 6:49pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/94 "2016-07-18T18:49:07Z")
> [@brickbacon](#): > > Let me [google](https://www.legalzoom.com/knowledge/corporation/topic/corporation-llc-comparison) that for you. Little of that is really germane to the argument. Much of the comparison is between an LLC and an S Corporation (which like an LLC does not pay a corporate level tax for the most part). The differences between an LLC and a C Corporation that are mentioned in the article have nothing to do with the sort of distinctions you are making. > [@](#): > > Either way, none of this matters. If some individual doesn’t think a corporate structure provides any benefits for which it’s worth paying taxes, they don’t have to incorporate. I agree and that is one reasons why I don’t have a problem with double taxation. Taxpayers get to choose the form of their entity. OTOH, it is still double taxation and there is a good principled argument for why this aspect of the argument for capital gains is valid. This is not some politically manufactured term like the “death tax” > [@](#): > > Yes, it primarily is. Do you think this term today is being used mostly by “tax professionals”? Of course not. Google the term and see how many come back to apolitical tax sites. I just did and most of the sites are investment and tax sites. Nothing on the first page from the Republican national party or Republican politicians. I suppose the tax foundation is a low tax dedicated non-profit organization. But its mostly being used by tax and investing professionals as far as I can tell. it is pretty clear that most of the non-professionals don’t know why its even called double taxation and can’t distinguish between deductible payments of business expenses, consumption and distributions of earnings. A similar search on “death tax” returned a much higher hit rate on political content. It seems at this point you are no longer making the argument that this is a political phrase. Now you just seem to think that it is being USED as a political phrase but at least you don’t seem to be putting it in the same category as death tax and pro-abortion anymore. > [@](#): > > No, it’s not. It’s income in both cases that is passing through two different entities. Once again, do you know what an LLC is? > [@](#): > > The issue is you want to pretend a corporation isn’t a separate entity when it is. So is an LLC. > [@](#): > > This is why owning Google stock doesn’t automatically entitle you to a cut of their profits. Yes it does. They may not distribute it right away but that share of stock has a claim on its pro rata share of earnings. > [@](#): > > It’s also why owning stock in company that gets sued into bankruptcy doesn’t typically attach to the shareholders. And this is different from an LLC because…??? > [@](#): > > It’s also partly why I could buy 51% of Facebook shares, and still not be able to wrest control from Mark Zuckerberg. WTF are you talking about? Of course you could. You would need to get your hands on some non-public shares but if you ever owned 51%, you would control the company subject to minority shareholder rights. > [@](#): > > Of course it does. This, again, is highlighting my point that term isn’t, “double income taxation”, it’s “doule taxation”. Given we are discussing the latter, and the above example obviously applies in a strict sense, we can be pretty sure we are not using the term strictly. Let me put it another way. Income tax is being charged to the seller if they make a profit. Sales tax is being charged to the buyer regardless of whether or not they are making a profit. The purchase is not “income” to the buyer. The way the term is used by everyone but people who want to ignore the existence of double taxation is the way I use it. Your use is a new and novel reconstruction of double taxation to mean any time a physical dollar gets subjected to tax more than once over the course of its corporeal existence. I understand you want to play fast and loose with the definition because do some reason you think that anyone other than tax professionals give a shit about double taxation or what it means but the term has a meaning and has had a meaning much longer than it has been a political issue. Double taxation has been a policy issue much longer than it has been a political issue. > [@](#): > > Just because it can be apolitical doesn’t mean it is used that way in a given case. As long as the political use is consistent with the apolitical definition, you seem to be arguing against facts when you deny the apolitical definiti9on and policy issues. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 6:54pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/95 "2016-07-18T18:54:47Z")
> [@Count\_Blucher](#): > > Magic Wand time? Sure… > > * * * > > One Third of Gross, calculated before all other taxes, but paid after all other expenses are paid. Calculated by the Government if the numbers submitted to the IRS look in any way circular or suspicious. > > Should any private firm submit numbers that are not only suspicious, but recklessly in the tax payer’s favor without merit, The fine shall be 100,000 times the total erroneous deduction > signed off on by the engagement partner, with both The Client and The Firm sharing equal responsibility. > > Such debt shall not be dis-chargeable by any Bankruptcy Action. > > * * * > > You never said it had to be Constitutional… I kind of agree that the penalty for underreporting are not draconian enough. If the chances of getting caught are 10% because congress keeps gutting the IRS and the penalty for getting caught are only 40% (or a doubling of the taxes) then ISTM that some punitive amount that corresponds to the capture rate would be necessary to effectively discourage tax cheating. As it is, we only double the taxes due when you get convicted of tax fraud. FRAUD. That is a intentionally lying to the IRS for then purpose of reducing your tax bill. Whoever said crime doesn’t pay didn’t have enough money to get access to the better paying crimes. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 7:57pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/96 "2016-07-18T19:57:15Z")
> [@Hellestal](#): > > If I own a cow, I own the stream of milk that squirts from her udders. > > That does not mean I am “entitled” to a guaranteed squirt on a regular basis, and it also doesn’t mean that a perfect proportion of the energy ingested by the cow in the form of wild grass on the open meadow must by natural law end up eventually becoming cow juice. Nevertheless, if there happens to be milk, then obviously that milk came from the same stream of energy that started as plant material, and I have a claim on it. I may wish the cow to retain her earnings as an investment, so that there are eventually more cows. If that happens, I should perhaps expect no milk in the interim in the anticipation of a potentially greater stream in the future. I can guide all of these choices. > > Because I own it. > > Ownership of shares of a corporation is a claim on a stream of income. Nothing in that sentence implies that owners are “entitled” to a guaranteed existence of the stream in guaranteed amounts on guaranteed days. Sometimes companies are in trouble and need all their energy just to become healthy again. Or even when they’re healthy, it can be prudent to retain earnings as an investment in hope of higher share prices and greater dividends and more dairy products in the future. > > So we can ask: Where do those dividends come from? How are they funded? Well, that’s generally pretty obvious. Dividends are funded out of the original earnings of the company. But this does not imply that there is any guarantee that dividends must be a perfect proportion of those original earnings. The earnings might be retained, or they might be re-invested, or they might be assigned as dividends, but – and here’s the important part – they can’t be pissed away for no reasonable purpose. The entire reason why shareholders have the right to sue when management is neglectful of the funds under their control is that shareholders have a stake in those funds, _regardless of whether dividends are currently being paid_. They have a right to sue because they have a claim on those earnings, which must be used in a responsible way, whether that be paying reasonable costs or re-investing or retaining the earnings internally for tax reasons or whatever. Shareholders don’t literally own a factory in Bhopal, but they do in fact have a very real and legally enforceable stake in the earnings of the company. > > Because they own it. > > I’m not sure where the “desire here” is supposed to be. I didn’t evince any such desire in my post. You are again making a political point written in response to a post of mine which made only definitional points. Maybe you were just using my post as a spring-board for deeper observations, which would naturally be fine. It’s just a little confusing from my perspective. > > But I don’t disagree with your ideas on fairness. I think you make solid points. If a corporation is considered a legally distinct entity, it makes some real sense that it be taxed in a legally separate way. I think some people are so used to the facts having a liberal bias that they don’t really know what to do when they don’t. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 7:59pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/97 "2016-07-18T19:59:01Z")
> [@Some\_Call\_Me.Tim](#): > > Trying to drag the point back to the OP… > > The capital markets have spoken, and for the most part under the current system of taxation they seem to prefer a corporate structure to a structure of joint ownership of the same enterprise- which would not include the particular tax burden of taxation at the corporate level. (Which some have attempted to deceptively label as ‘double’.) The other benefits society allocates to the corporate structure outweigh in most cases the status quo’s tax burden on that structure. Deceptively? There is a structural advantage to C corporation structures in that the markets are familiar with and easily digest securities in the form of C corporation stock but if the markets every adapted to accept LLCs and trust certificates, then there would no longer be much of an advantage to C corporation structures. We already have C Corporations that do not have double taxation. See REITs. > [@](#): > > The claim that taxes are too high for that ownership structure is flatly contradicted by the observation that the vast majority of investors choose that structure even given the status quo level of taxation. > > I would suggest that watching where the money goes would be instructive - modest raises of the rate or loophole closure might be attempted, keeping an eye on whether this changes where the money goes. > > All other things equal, I think that reducing the layers of corporate abstraction would be useful. Modifying the tax code to encourage models like joint ownership rather than the status quo encouragement of a byzantine corporate structure seems like a good idea to me. :smack: ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 8:02pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/98 "2016-07-18T20:02:14Z")
> [@Some\_Call\_Me.Tim](#): > > Yes. Shareholders own a legally enforceable contract that requires the corporation to pay them the amounts specified by that contract. If that’s what you meant by ‘it’ then we’re in agreement here. > > The part that I don’t understand is why some people think that this particular type of contract is somehow different from other legal obligations the corporation may have to give money to other individuals. Dividend distributions are not deductible. Most other contractual payments are either deductible, amortizable or you get a basis. > [@](#): > > If I exchange widgets that cost me $1m to manufacture for a contract by a corporation to give me $2m in six months, I would expect to pay income tax on the profit when the corporation fulfills its contract. If I exchange $1m for a contract by a corporation (‘stock’) to give me money in the future based on some specified formula, I should expect to pay income tax on the profit when the corporation fulfills its contract. You also paid $1 million to make the widgets. You can deduct that million dollars. You cannot deduct the dividends paid on those profits. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 18, 2016, 8:03pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/99 "2016-07-18T20:03:24Z")
> [@Peremensoe](#): > > Because the first _is_ reaping a far higher income for that one year. Presumably his tax bracket will be lower than the other guy’s, in all the other years. The way graduated tax systems work means that the guy with income bunching pays more in taxes. OTOH, our tax structure is pretty flat right now so the differences are not all that significant. ---
**Author:** ![OldGuy](https://avatars.discourse-cdn.com/v4/letter/o/3bc359/32.png) [@OldGuy](https://boards.straightdope.com/u/OldGuy)\ **Post date:** [July 18, 2016, 8:16pm UTC](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967/100 "2016-07-18T20:16:11Z")
> [@Martin\_Hyde](#): > > For households above $200,000 I’d say all cap gains other than those on tax-free municipal bonds simply be taxed as ordinary income, at the current schedule. Actually capital gains on “tax-free” munis are taxed in almost the same way they are on regular taxable bonds. Only the interest is tax-free. There is a minor difference in that if you buy a muni at a premium you must amortize that premium as a non-deductible loss over the remaining life of the bond. [Previous page](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967.md?page=4) [Next page](https://boards.straightdope.com/t/what-should-the-capital-gains-tax-be/759967.md?page=6)