Taxing Capital Gains

[BillBrasky]

I'd like to have a discussion about the rate at which capital gains are taxed. I'm of the fundamental belief that the lower tax rate on long-term capital gains should be eliminated and that it should be equal to our normal federal income tax rate.

That being said, I'm open to disagreement, and would actually prefer to hear some opinions about why this exception is beneficial to our society.

I definitely do not claim to be an expert on the subject.

 

[wfudkn]

I am no expert at all, but lower cap gains on long-term (>1 year) holdings encourages people to invest and thereby strengthens our economy. Short-term gains are taxed at ordinary income rates.

 

[tbird]

I am no expert at all, but lower cap gains on long-term (>1 year) holdings encourages people to invest and thereby strengthens our economy. Short-term gains are taxed at ordinary income rates.

I do short and long term investments...agree 100% with the above poster...my short term trades are predicated on price movement rather than tax implications. Long term investments (6mos. & longer) also take advantage of dividends and projected price movement.

 

[2&2 Slider To Leyritz]

In a vacuum, I would be fine with capital gains being taxed at ordinary rates.

However, given the clusterfuck of Social Security solvency, taking away a major incentive for people to save for their own future would be an awful idea at this point in time. I guess if you said that you would take the additional funds gained from the increased tax and use them solely to fund social security I would be okay with it, but I don't trus the government to do that. The money would end up going to Obamacare or to bail out Chrysler again or to build a bunch of warplanes that we don't need.

 

[PhDeac]

Why is money resulting from long-term investments taxed at a higher rate than paycheck earned for an honest day of work?

 

[RJKarl]

In a vacuum, I would be fine with capital gains being taxed at ordinary rates.

However, given the clusterfuck of Social Security solvency, taking away a major incentive for people to save for their own future would be an awful idea at this point in time. I guess if you said that you would take the additional funds gained from the increased tax and use them solely to fund social security I would be okay with it, but I don't trus the government to do that. The money would end up going to Obamacare or to bail out Chrysler again or to build a bunch of warplanes that we don't need.

What crap! It would take no incentive away from people.

 

[DeaconCav06]

Why is money resulting from long-term investments taxed at a higher rate than paycheck earned for an honest day of work?

You mean a lower rate?

 

[PhDeac]

Yeah.

 

[Les Grossman]

Why is money resulting from long-term investments taxed at a higher rate than paycheck earned for an honest day of work?

Putting the typo aside...I agree. I've never understood this. I would love to see some empirical data that the tax rate at say even 25-30% for long term investments would curb investing. I've always looked at it this way - Anyone who makes enough money to put away for savings will do one of two things. Spend their extra money like an idiot and put themselves into more debt. Or, put aside that money and invest it. They're not going to leave it in a bank with .5% interest. Then again, I am not an expert on this subject at all so I can be convinced that I have no idea what I'm talking about.

 

[olddke]

I used to support the favorable treatment of long term cap gains as a tax policy. I believed that the larger societal good from these investments (job creation and greater empoyment opportunities) justified an individual getting a tax break. Today, I no longer feel that these societal benefits are being generated by such investment and therefore are no longer justifiable tax policy. I think all cap gains should be taxes as regular income for individuals. Does this mean I am becoming more liberal as I age?

 

[SkinsNDeacs]

Taxing capital gains seems like something that has fairly wide bi-partisan support. Hell...it was basically the foundation of Mitt Romney's tax plan (if you read between the lines). Why has it not happened?

 

[PhDeac]

We've got to figure out how to make job creation a better investment than the many other ways someone can spend their money.

 

[bcobbdeacs]

Most common argument against taxing long term gains more that I hear is that the money you invested has already been taxed once generally at the income tax level and now you are taxing it again, essentially double taxing the same money.

 

[olddke]

Most common argument against taxing long term gains more that I hear is that the money you invested has already been taxed once generally at the income tax level and now you are taxing it again, essentially double taxing the same money.

The principal was already taxed, the gains however were not.

 

[WFFaithful]

I used to support the favorable treatment of long term cap gains as a tax policy. I believed that the larger societal good from these investments (job creation and greater empoyment opportunities) justified an individual getting a tax break. Today, I no longer feel that these societal benefits are being generated by such investment and therefore are no longer justifiable tax policy. I think all cap gains should be taxes as regular income for individuals. Does this mean I am becoming more liberal as I age?

We've got to figure out how to make job creation a better investment than the many other ways someone can spend their money.

Agreed

 

[WFFaithful]

Taxing capital gains seems like something that has fairly wide bi-partisan support. Hell...it was basically the foundation of Mitt Romney's tax plan (if you read between the lines). Why has it not happened?

Politics. Nobody wants to raise tax rates.

 

[pourdeac]

Taxing capital gains seems like something that has fairly wide bi-partisan support. Hell...it was basically the foundation of Mitt Romney's tax plan (if you read between the lines). Why has it not happened?

It's been raised to 20% for high income earners.

I think the primary reason the rates are lower is because long term the asset value also increases because of inflation, not just because the underlying value of the asset really increases. Would it be fair to tax the inflation component? The other main reason is if rates are too high here, money will flow elsewhere to effectively get rid of the tax, which is what a lot of corporations have done given our relatively high rates. A more practical problem with the code is that in any one year, one can't get the full tax benefit from a large loss. The max is $3,000 and carried forward until a gain occurs. One theoretical reason is because in essence a lot of the gains in an asset, such as a stock, already have a tax "penalty" associated with the intrinsic value. That's the double taxation argument.

The asset bubbles we've had since 1996 make it tempting to just tax the crap out of assets now, but I'd be a bit cautious in going there...IMO.

 

[2&2 Slider To Leyritz]

We've got to figure out how to make job creation a better investment than the many other ways someone can spend their money.

I mean, that is really what the lower rate was designed to do. Whether it actually does that, however, is obviously a different story.

 

[PhDeac]

How does the lower rate do that? Seems like it does the exact opposite. A lower capital gains rate makes it more reasonable to just invest money than take a risk of creating jobs.

 

[DeaconCav06]

I'd trade a higher cap gains rate for a reduced corporate rate.