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Should Congress Eliminate the Capital Gains Income Tax?

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Presidential candidate Mitt Romney has selected a running mate, Paul Ryan, who has proposed eliminating the income tax on capital gains. The Vice President of the United States doesn’t have the authority to change the tax law, of course, so there’s no reason to think this idea or the rest of Ryan’s fiscal plan will become a reality, but pieces of it might eventually be discussed in Congress. Should Congress elimiate the capital gains income tax?

The first problem is having an understanding of how much revenue the government receives from the capital gains tax. Most studies group this tax with the rest of income tax, so there isn’t a lot of information about the capital gains tax alone. There are some studies, however, that do address the breakdown between the various forms of income tax. The following is from the Congressional Research Service, published in 2010, one of the most recent studies.

Overall, capital gains tax revenues have been a fairly small, but not trivial, source of government revenue. Since 1954, revenue from the capital gains tax as a share of total income tax revenue has averaged 5.2%. It reached a peak of 12.8% in 1986 and a low of 2.0% in 1957. Nonetheless, the 2007 capital gains tax revenue of $123 billion was equal to 75% of the FY2007 budget deficit.

In 2007, if tax on capital gains resulted in $123 billion in revenue and the amount of revenue from all personal income tax that year was $1.5 trillion (per usgovernmentrevenue.com), capital gains tax accounted for 8 percent of income tax. That’s certainly a significant amount of money that the government would not receive, making it more difficult to fund various programs without borrowing more. This isn’t a question of lowering the capital gains rate to find the level of tax that results in the most revenue; eliminating the capital gains tax without any adjustment anywhere else in the tax code is guaranteed to reduce revenue for the government.

Ignoring government revenue for a moment, proponents of the tax’s elimination also argue that a gift to investors will spur investments. Decreases in capital gains rates tend to spur selling (which in any market goes hand in hand with buying). Some theories suggest than investors might see the lack of capital gains tax as an incentive to move money from cash, where earned interest is considered regular income, to investments like the stock market, where realized increases in value are recognized as capital gains. Investors are generally moved by the perceived underlying value of their potential investment, however. You’re not going to invest in a company just because you have a chance of enjoying gains tax-free, you’re going to invest because you believe the company is going to thrive with your financial help.

Is the capital gains tax fair? For the most part, ask anyone who they believe pays too much tax and who they believe pays too little, the answers are “me” and “everybody else” respectively. The public is overwhelmingly in favor of a fair tax, but the definition of “fair” differs depending on who is writing the dictionary. The wealthiest Americans earn a good portion of their income every year from their investments. If that income comes in the form of realized capital gains and qualified dividends, Americans who can most afford higher taxes can, in some cases, owe a smaller percent of their income in income taxes than Americans who have traditional earned income. No one wants to live in a country where successful individuals are “penalized” for growing their personal wealth, but we live in a society that is more than a collection of individuals, and that type of society only functions well when everyone contributes to the welfare and infrastructure of the country.

Evaluating Mitt Romney’s tax return from 2010, Paul Ryan’s tax plan — which again has little meaning other than an indication of either what he believes is best for the country or what he believes is best for attracting fans and voters — would have Romney paying an effective tax rate of 0.82 percent. Although Romney argued against eliminating the capital gains tax when it was his opponent’s idea, it’s hard to turn down a proposal that effectively eliminates one’s entire tax bill.

Should Congress take cues from Paul Ryan and consider eliminating the capital gains income tax? Does your opinion reflect how you stand to gain from such a policy?

Photo: Tobyotter
Congressional Research Service, usgovernmentrevenue.com, The Atlantic

Updated August 21, 2012 and originally published August 15, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 50 comments… read them below or add one }

avatar krantcents

The purpose of the lower tax is to encourage investment. Zero tax would be further encouragement, but I do not see that ever happening in these huge deficits of late. Lowering it may be a better choice if anything.

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avatar SteveDH

“Nonetheless, the 2007 capital gains tax revenue of $123 billion was equal to 75% of the FY2007 budget DEFICIT.” (emphasis added) I find that statement pointless and absurd. It serves as a good example of how – when all of those smart people get under that congressional dome – they magically morph into our collective village idiot.

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avatar GE Miller

You touched on it, Luke, but I think you were being a bit too kind in your assertions.

Republicans wanting to get rid of the capital gains tax is effectively a loophole for them to bring their tax rate as close to 0% as possible for themselves and their wealthy constituents.

If you’re a multi-millionaire or billionaire, and you don’t earn a salary, your only income is coming from your investments. If that income grows without any taxation, you’ve effectively eliminated your tax burden entirely.

That is all this is. The benefits to market values are negligible, if positive at all (might actually be a negative since investors are more likely to sell to take winnings).

I personally don’t want to get taxed on my investments, but I REALLY don’t want to see the wealthiest pay zero in taxes, so I’m willing to take the hit. You can guess where my vote is going.

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avatar Investor Junkie

But how did they earn it to begin with? It’s double taxation in it’s simplest form. 80% of all millionaires do not inherit their wealth. That means they must of had to work in order to create their wealth.

I agree about zero taxes on it though.

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avatar Gen Y Finance Journey

It’s not double taxation at all. They pay taxes on the money they earn through ordinary income. Then they invest that money and pay taxes on their capital gains. They don’t pay taxes on their principal, just the gains. Nothing is being taxed twice.

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avatar Philip Taylor

I personally think most, if not all taxes should be eliminated. I can easily see how people on the Left (who believe that the govt is the answer to most of our problems) would view the revenue side the equation in this pragmatic way. It makes sense. If govt is the answer, vs the people or the Church, then we’ve got to get more money into the hands of the govt to solve all these issues.

But I believe, as did our founders, that society is better off when we solve our own problems without state control of our funds. Romney gave over 4 million to his Church over the last two years. I’d like to be able to give more of my money away as well, but I can’t because it’s taxed.

I think the cap gains tax is double taxation. It’s just another way for the govt to get at our money.

I’ve felt that way since I was a broke college student. I will not benefit from the capital gains tax until I retire, I suspect. So my fairness doesn’t come from some selfish desire as we conservatives are so often portrayed. I want lower taxes for everyone so that everyone can do good works with the money they earn, just like Romney does.

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avatar GE Miller

Whether eliminating taxes entirely would result in paradise on earth or the end of the world as we know it is anyone’s guess, but realistically speaking, that will never happen.

So then the question becomes: do you, as a hard-working individual, want to pay more in taxes so that the wealthiest who are living entirely off of capital gains can pay 0% in taxes? If you’re one of the wealthy that benefits from 0% taxation on your income, and the result is less well-off individuals are left footing the bill (even more so, b/c you’re not) for the services you benefit from, is that fair?

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avatar Philip Taylor

I agree it will never happen.

As for Capital Gains taxes, like I said, I think fundamentally they are double taxation. Mitt Romney already paid a 35% tax rate on the money he earned, which was then taken and invested. He’s already paid a bunch of taxes into the system.

It’s incorrect, in my view, to say someone “can pay 0% in taxes” because they are living on capital gains. That is not what happens. Wealthy people pay their 35% income tax rates, then they earn gains on those same dollars, only to have to pay another 15%. They’ve already paid a s load into the system that they are benefiting from. If they got the money from someone else, there are estate taxes they’ve paid on top of the original earners’ income taxes.

We’re all paying too much in taxes. Even the 40% who pay no income taxes. Those people pay payroll taxes and sales taxes that are too high. The state is only interested in taking more from us so that they can spend more. It will never end. Look at a federal spending chart over the last 40 years (even inflation adjusted or % of gdp) and tell me when spending has come down significantly. It will never end. They always want more.

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avatar GE Miller

Why should market investment income be treated any differently than salary earned from a 9-to-5? Income is income – you are not taking away more from income already earned – just new income (“double taxation” implies taking more from the same pot, but that’s not true).

What if instead of investing in stocks, an individual invested in their own personal business, real estate, or some other endeavor? If they earn income from that venture, they should be taxed the same as someone working a 9-to-5 or investing their money outside of the market. Why punish those with the jobs and reward those who do nothing but sit around and collect gains on “market” investments?

Also – the “always more” point – 35% is on incremental income (over $388K). This is the lowest point in 70 years. I will agree that too many taxes are being paid, but it’s by the low and middle class – not the wealthy or corporations (who only paid 8% of all collected tax revenue last year).

Thought this was interesting: http://www.reuters.com/article/2012/04/16/us-usa-tax-buffett-idUSBRE83F05H20120416
“Romney’s 2010 returns and estimates for 2011 showed he will pay $6.2 million in taxes on income of $42.5 million (14.5%).
Romney reported about $13 million in income over the past two years from “carried interest,” a form of earnings that is available to private equity partners and taxed at the 15 percent investment income tax rate, not the higher wage income rate.
Obama on Friday released tax returns for 2011 showing he paid a 20.5 percent effective tax rate on $789,674 of income”

Why is Obama paying a 6% higher tax rate when he earns about 5% of Romney’s income?
To that end, why am I paying a higher tax rate than Obama with a fraction of his income?

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avatar Tom Dziubek

“Obama on Friday released tax returns for 2011 showing he paid a 20.5 percent effective tax rate on $789,674 of income.”

As Flexo alluded to, the definition of “fair” is subjective. Personally, it amazes me how people in general are getting so hung up on rates while overlooking the sheer amount of taxes being paid by the highest earners in the country. Going by the above numbers, even if Obama paid taxes at a 20.5% clip, that turns out to be, what? $161,883 in income taxes in one year? Romney just paid three MILLION dollars in income taxes. Does it really matter that the rate is only 14.5%? His $3 million surpassed Obama’s contribution by ~2.8 million dollars. Obama could contribute $161,883 for 18 straight years and STILL not match Romney’s $3 million. And yet people are still arguing that Romney should have paid another million? Seriously?

avatar Philip Taylor

One is an asset sitting around. The other involves production of something new. It’s fundamentally different, which is why they are taxed differently. Romney earns his dollar. He then invests it in a company. The company turns a profit and pays corporate taxes on the earnings. Then they pay Romney his dollar and change. Romney pays taxes on the change. Then he goes and buys groceries and is taxed again. Then he dies and passes his money along to his kids. The money is then taxed again. It goes on and on. There is double taxation in there somewhere.

As I said in the outset, I’m all for lowering everyone’s taxes so we can do greater things with it. Let’s lower them all. This us vs them (punish vs reward) thing is just divisive politics and a distraction from the real issues of out of control spending and a crapy economy.

avatar Jonas

Yes, capital gains should be eliminated. And all gains from investments should be taxed as ordinary income at the same rate as everyone else’s income. It’s time investors paid the same tax rate as the common folk.

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avatar Mike

I hope you’re keeping the long term cap rates.

Why would I invest long term if cap gains are taxed the same either way?

I’ll just hold them short term. Like maybe a month.

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avatar UH2L

Well said. I can’t believe people still subscribe to the Republican philosophy of trickle down economics. Capital gains are for rich people. How many middle class people own significant amounts of stock outside of retirement accounts? We’ve had the lowest tax rates for the rich in history, corporations are hoarding cash, and jobs still aren’t being created! It doesn’t work. The rich keep getting richer and they don’t want to pay their fair share to reduce the debt even though they have benefited the most. I firmly believe that they’re just holding out on hiring until they get their man in office. They also claim economic uncertainty as the reason they don’t hire. First of all, unemployed people make bad customers. Second of all, the constant stream of financial scandals create far more economic uncertainty than Obamacare. And those were created because of a lack of government oversight of banking which Republicans oppose. Also, don’t forget that corporate tax rates are different than personal tax rates. An increase in personal taxes on wealthy CEO’s and the <5% of small business owners that make over $300K will have a negligible effect on hiring.

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avatar UH2L

I meant to say well said to GE Miller.

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avatar Investor Junkie

UH2L on your talking point what is “fair share”? Please tell us. That is envy talking.

The rich is a dynamic class. As I just stated 80% of people with over a $1 million net worth did not inherit it. So that means they started like most with little or nothing.

The reality you could tax 100% of people over $250k year and it wouldn’t cover our current deficit.

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avatar mlathe

First… the US doesn’t tax networth, the federal government taxes income. Furthermore just because they “started like most with little or nothing” doesn’t mean they shouldn’t be taxed significantly. They live a comfortable life and therefore should be able to lift some of the burden off of the poorer classes of people.

Second, I’d like to see some evidence that taxing 100% of the income over $250k wouldn’t close the deficit. I think you might be close to “correct” at least for the current year. But if you look at the CBO numbers (http://www.cbo.gov/publication/42905) you’ll see that the baseline projection shows that the deficit will drop down significantly in the next 2-3 years (mainly b/c of the Bush Tax Cut expiring). Given that the rich fund the vast majority of tax revenues (and yet i would that close to all pay less than 30% in taxes right now), it seems like a 100% tax rate would get you pretty close to closing the deficit.

Last thing to think about, this doesn’t even take into account Corporate taxes, nor the what I would assume would be savings associated with exiting the Afghan war.

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avatar Investor Junkie

No they don’t tax net worth (yet) but if how do you suppose they became wealthy? Especially as I stated they are first generation wealthy. They were once poor or middle class themselves.

It proves my point that at one point there were already taxed on their income. The difference from income minus taxes (and other expenses) went into investments. Then therefore they are being double taxed. I don’t see how you refute anything I said.

On your second point I don’t have a study handy but I’ve seen it in a few non partisan state this (I would have to search for it). But even if you were to tax at 100% in reality you would never get anywhere near the amount because people would modify their behavior long before reaching that percentage (ala Laffer Curve).

It could be said corporate taxes are a third tax on the same generated income by individuals. In addition any taxes waged on a corporation doesn’t get paid by the company it eventually goes down the individual in many ways. Let’s use what was in the recent news with Obamacare and Papa Johns. It was stated they price of each pizza will increase because of having to comply with Obamacare.

All of it comes down the class economic phrase TINSTAAFL.

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avatar mlathe

most of what you said doesn’t make sense or is just a red herring.

People are taxed on their gains. If they invest some money, they don’t get taxed on any that invested money, they only get taxed on their profits. If what you said was true then business owners would never pay taxes since their initial investment would compound and grow without taxes. yay! (insert pothole here)

As for your statements about corporate taxes, I’m lost as to why you think this money is a triple tax. The wages of employees are an expense to the corporation. Revenue – Expense = Profits. So the more you pay employees the less the corporation pays in taxes. The only case I can think of (correct me if there are more) where there is double taxation is in the case of dividends. A company paid taxes on the profits and then they decide to distribute those profits to shareholders who pay another tax.

Regarding Papa Johns: I welcome a 14cent per pizza “fee” (http://www.csmonitor.com/Business/new-economy/2012/0808/Papa-John-s-pizza-controversy-Another-fast-food-chain-embroiled-in-culture-war) if it means that the people making the pizza can have some sort of healthcare coverage.

There is no such thing as a free lunch. True, but tell me how you are fulfilling your Christian duty to help the poor and disadvantaged>

avatar Investor Junkie

Mlathe,

I’m not very religious and others who are of other faiths in this country don’t follow the same christian beliefs. That’s not to say you shouldn’t help the poor but that is why we donate to charity. You know as well as I do the government is inefficient in those means. Worst yet it’s by the means of a gun, and you have no choice in who you donate to. I know this much, the more I am taxed the less I will donate less to charities. After all then that is what my taxes are going towards, why donate to charities then?

In addition, by owning a business, being productive you are helping others. You are helping society become a better place by the services you offer. You also employee people, use vendors, and buying products and services of others. It’s a fair exchange of services, instead of a wealth transfer.

Yes I understand that 14cent isn’t a whole lot. Again that isn’t my point, but the point is tax, after tax after tax, increases the cost of the products you buy. Directly and indirectly. Somehow I think most believe in magical unicorns, and there won’t be any unintended consequences.

avatar UH2L

“I’m not very religious and others who are of other faiths in this country don’t follow the same christian beliefs. That’s not to say you shouldn’t help the poor but that is why we donate to charity. You know as well as I do the government is inefficient in those means.”

There is no way private or religious charities can make sure that everybody is helped in urban and rural areas when they are dependent on where wealth is centered, how much people feel like donating, This is why we need taxes so that the government can be sure everybody who needs and deserves help can get it. Sure the government can be inefficient but it’s the only way to make it fair and available.

avatar UH2L

I’m not being envious. My net worth is not a million but it is relatively high and I’m willing to pay more tax to help. If all I cared about was money, I would have chosen another profession.

“Fair share” is subjective but I do know that the rates for the wealthy are the lowest they have ever been and we’ve had great economic growth in other times with much higher rates for the wealthy. Mlathe is right in saying that income is what’s taxed and that just because people are self-made millionaires doesn’t mean that tax rules should be any different. And I also agree with Ceecee as well when she points out why it’s not double taxation.

Bringing up the point that you could tax 100% of income from people earning over $250K per year is pointless. It is an unreasonable extreme and it would never happen. But increasing taxes, even if they don’t cover the whole debt would at least help us pay back some of it. We have to start somewhere. We can at least start with letting the Bush tax cuts expire.

You still haven’t refuted my points about how very few wealthy small business owners would get affected and how personal income taxes have nothing to do with corporate taxation and hiring.

The whole nonsense about Obamacare increasing the price of pizza is ridiculous because it would hypothetically increase the price negligibly.

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avatar Investor Junkie

““Fair share” is subjective but I do know that the rates for the wealthy are the lowest they have ever been and we’ve had great economic growth in other times with much higher rates for the wealthy”

Yet they are already paying huge percentage much more than anyone else? Much more disportionately so. Like California it is a recipe for disaster. California expected those Facebook millionaires to balance the budget… Whoops.. not going to happen now.

That was also then, we are a completely different economic situation, if you are referring to the 90′s.

“Bringing up the point that you could tax 100% of income from people earning over $250K per year is pointless.”

The point is is two fold. You cannot expect to balance the budget by rich paying their “fair share”. We have a spending problem, not a taxing one. How about if we flatten the taxes and expand the base? So that way more pay their “fair share” in Federal taxes.

“You still haven’t refuted my points about how very few wealthy small business owners would get affected and how personal income taxes have nothing to do with corporate taxation and hiring.”

Hmm you do realize many small businesses are “rich” according to Obama right? Most small business owners are going to see a dramatic increases in taxes already next year, without the increase in capital gains.. Capital gains affects when a business owner sells their business as well.

“The whole nonsense about Obamacare increasing the price of pizza is ridiculous because it would hypothetically increase the price negligibly.”

No it’s not because taxes affect the price of the goods you consume. Directly as a sales tax and indirectly because of the taxes the company pays. You ask the company to pay more taxes the price of selling it’s goods automatically go up. Because in the end a company either makes a profit or stops making that product because the market can’t support the price they must sell it at.

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avatar Tony

You must be filthy rich to support the right wing philosophy of low taxes for the rich. You have to understand that poor people spent the majority of their income in needs so it’s fair for them to pay a lower tax rate than the rich. A rich person only needs to spend a tiny percentage of his/her income in needs (after all how much food can you eat, how many cars and houses do you need?). So a rich person can easily afford to pay a higher tax rate.

avatar Investor Junkie

Tony,

I’m “filthy rich” only according to Obama – not paying my “fair share”, nor “didn’t build that”. All talking points from Democrats/Progressives. Instead I’m a business owner who already pays his “fair share”, and will be paying much more next year. For what? paying down the debt? No. For the most part a wealth transfer. Anyone who thinks tax increases for the rich will help pay down the debt/deficit is fooling themselves.. seriously.

My ideal would be low taxes for everyone. Flat tax ideal. I never singled out “rich” tax decreases in any of my statements. You pay X amount and send it in. None of these deductions, loopholes, or any other methods to be exempt. Instead everyone is obscured how much we pay (or don’t pay) in taxes.

When 40-50% (whatever study you read) doesn’t pay an effective Federal income tax we have a major problem. It’s representation without taxation. Someone who doesn’t pay Federal taxes (yes I am well aware of the other taxes people do pay) they have absolutely no skin in the game with the Federal government. They will always vote what’s beneficial for them since it’s “tax thee behind the tree”.

Therein lies the problem with anything suggested in the comments. It doesn’t affect you so therefore it’s ok, without understanding/caring the consequences. Nor solving the root problem. We spend way too much than we ever would take in.

avatar UH2L

Yes the wealthy are paying a disproportionate amount of the taxes but their percent of all income earned is much higher and the most disproportionate ever!

http://www.motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

“The richest 10% control 2/3 of Americans’ net worth.” But I bet you they don’t pay anywhere close to 2/3 of personal income taxes.

http://blogs.wsj.com/wealth/2011/09/26/why-the-rich-pay-40-of-taxes/

“Data from the Tax Foundation bears this out. Between 1987 and 2008, the share of income controlled by the top 1% grew to 20% from 12%. That signals a total share growth of 67%. During the same period, their share of taxes went to 28% from 24%, suggesting share growth of 17%.”

In other words, the top 1% share of income grew nearly five times faster than their share of taxes.

http://economix.blogs.nytimes.com/2012/01/17/measuring-the-top-1-by-wealth-not-income/

“The Times had estimated the threshold for being in the top 1 percent in household income at about $380,000, 7.5 times median household income, using census data from 2008 through 2010. But for net worth, the 1 percent threshold for net worth in the Fed data was nearly $8.4 million, or 69 times the median household’s net holdings of $121,000.”

avatar UH2L

“Hmm you do realize many small businesses are “rich” according to Obama right? Most small business owners are going to see a dramatic increases in taxes already next year, without the increase in capital gains.. Capital gains affects when a business owner sells their business as well.”

“Most small businesses”? Really? You must have heard that lie from Fox News. Obama only wants to raise taxes on people making over $300K per year. And based on a few on-line income percentile calculators I could find, only 3% of Americans make $300K plus. And what percent of those people are small business owners?

http://coastalpoint.com/content/letters_editor_july_27_2012

“…less than 3 percent of small-business owners make more than $250,000 a year, according to a recent Treasury Department report (page 21)”

avatar qixx ♦1,895 (Half-Dollar)

UH2L makes a good point on the top not paying their fiar share. According to the data UH2L provided the top 1% control 20% of the income and only pay a miniscule 28% of the tax. They clearly need to pay more taxes. “In other words, the top 1% share of income grew nearly five times faster than their share of taxes.” Looks to me like they were overtaxed to begin with.

If the above is true (i expect those numbers are in fact accurate) then the top 1% should actually get tax breaks. It is then the 2%-10% group that may not be paying their fair share. I don’t have nor care to find the data to validate that one way or the other. We are in a 99% vs 1% battle in this country. The 1% pay more than their share. While i am not even in the to 10% and don’t expect to ever be in the top 1% i feel the top pays their fair share.

As for the Obama tax policy – the raise taxes amount is $250K not $300K. “Reinstate top tax rates of 36% and 39.6% on joint income of more than $250,000″ – Obama Tax Plan

avatar Her Every Cent Counts

I’m not rich (networth $200k) but I own a sizable amount of my investments in taxable accounts ($130k) because over the last 10 years of my life there have only been 2 years when I’ve had access to a 401k from my employer. I invest my money vs spend it today because I trust that — despite great risk in my investments — over the long term it will grow and potentially support me in my retirement. The $17k max for ones 401k is not enough for retirement anyway if you live in a metropolitan area. I’m not for removing taxes entirely on the interest income but if they bump this up to your income tax rate there would be much less incentive to invest in the stock market. I’d probably look for tax advantaged investment opportunities, maybe even buy a home. But right now investing in the stock market makes more sense then purchasing a home.

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avatar Ceecee ♦53 (Newbie)

Personally, I don’t believe that the tax system should be used to elicit a certain behavior in citizens, although I understand that it is done all the time. If capital gains taxes are eliminated, then I think you would have to eliminate the tax on interest earned in savings accounts and cd’s. This is how less wealthy people invest, because they might need the money and couldn’t wait out the market. I don’t get the theory that taxing capital gains is taxing people twice……..they are earning twice, in two very different ways. Eliminating all tax on capital gains is a huge gift to the wealthy, we all get that.

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avatar mlathe

Agreed, especially since capital gains is only applied to earnings, not to the “principal” of the investment.

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avatar UH2L

That’s a great point Ceecee. If capital gains taxes go away then they would have to remove taxation on earning from accounts and CD’s. Everything I’m finding on the internet says Ryan’s plan would do that. Then our debt/deficit would go up even more. Quite a plan, isn’t it?

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avatar Investor Junkie

Taxes should be a form of collecting revenue for the government. That’s it!

Instead it’s become much more of a form of “social justice”, whatever that exactly means.

The problem we have and especially with this administration is taxes have become a means to punish specific groups and reward others.

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avatar gina

The only way Capital Gains are taxed twice, is once through corporation taxes and then through individual taxes. Earning on money you already paid tax on is always taxed, that’s not considered double taxing.

However you can’t have it both ways. If a corporation is a person, then let that “person” pay the tax. If it’s not a person, then you can complain about double taxation.

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avatar Investor Junkie

While a corporation IS a legal entity it, it does not pay the taxes. People do. Any taxes put on a company eventually gets passed down to either the shareholders, or consumers. There is no way around this, because who owns the company? People! Who consumes the products? People!

It is only a person from a legal perspective. If you are complaining about rule of law for companies that is a whole other discussion.

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avatar UH2L

So you’re saying a corporation is a person except when it pays taxes. Then it’s the people that make up the company that pay the taxes? But when a corporation earns money, it is a person and the people that make up the company shouldn’t get the income? When a corporation tries to gain influence in government, it is a person. Sounds like a double standard of convenience to me.

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avatar wylerassociate ♦162 (Cent)

as an investor I would love to see the capital gains income tax eliminated but in this unhinged world of partisan politics I don’t see this happening.

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avatar qixx ♦1,895 (Half-Dollar)

I think not just capital gains but all income based taxes should be eliminated. Taxes should be based on consumption not increases.

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avatar Elena@personal finance

It would be nice if capital gains tax was eliminated, but nowadays when our country is trillions of dollars in debt and basically owned by China, Russia and other countries who hold the biggest part of our national debt – is not such a great idea.

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avatar SteveDH

Sorry but you’re simply wrong – We American’s and our institutions hold the majority of our debt issues. In the order of holding the top 15 are: Social Security, US Federal Reserve, China, Saving Bonds and Investors, Japan, Pension Funds, Mutual Funds, State & Local Governments, Medicare Trust Fund, Depository Institutions (Banks and Credit Unions), Oil Exporters, Insurance Companies, Brazil, Carribean Banks, and Taiwan. That according to the US Treasury are the major holders of our debt instruments.

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avatar Tony

We should simplify the tax code. Only 4 brackets (10,20,30,40)% for incomes up to (50,100,250,1000)K, these levels could be discussed but all sorts of income taxed at the same rates, no preferences for anybody and eliminate every single deduction even the popular mortgage interest deduction and leave a single standard deduction of 20K. Problem solved. You are welcome America.

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avatar qixx ♦1,895 (Half-Dollar)

You need a 5th bracket. 0% for those below the poverty level. When their options come down to buy food and eat or pay income taxes the taxes will lose every time. Not including a tax bracket for them will create a large group of tax evaders in this country. You then have added costs of trying to police and enforce the tax code on these individuals. Mandating companies enforce the 10% minimum will just increase the number that file for government assistance. Many will collect more than they pay in taxes. If you believe everyone should pay something then set that bottom level at $1 – just make sure you don’t forget about them.

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avatar PK

I don’t agree with a number of the posters that capital gains are double taxed – yes, corporate profits are taxed, but you knew that going into your investment. My major issue is with how capital gains are taxed. If I bought a stock in 1970 for $10 and it is worth $12 today, I pay tax on the $2 in gains even though, in real terms, I lost tons of money to inflation.

For all the people saying we should treat it like regular income – your salary generally keeps pace with inflation, and if it doesn’t you get a tax break. Do you think ignoring inflation on capital gains calculations is fair? Note that that is true for both short and long term capital gains – your 1% APR bank account returns are taxed even though, in real terms, you are poorer for using your bank.

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avatar WhataboutRoth

Roth retirement accounts would be meaningless if there’s no tax on capital gains!

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avatar Steven J Fromm

Wait a minute. If we eliminated the capital gains that would allow only the wealthy to take advantage. The real problem is the wealthy in this country have been responsible for outsourcing jobs leading to the middle class in our country losing out. Do we really want rely on the rich people for investing. This is why we are in the current mess we are in. The outsourcing ideas came from the owners of companies to make these companies more successful. How does eliminating the capital gain tax help. This is all so misguided. We need to be figuring out a way to have a tax code that encourages companies to bring our jobs back to this country. Eliminating capital gains tax will not do that and will make it worse for all concerned.

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avatar Mike

You mean something like…

Evening out the tax rates for all businesses?
Then, lowering the corporate tax rate to below our main competitors in world?
Reducing the paper work for businesses?

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avatar qixx ♦1,895 (Half-Dollar)

If you are going to manage this through taxes i think taxing imports both full products and shipped parts. That way you can’t get around the import taxes by just leaving one part off the product so the assembly is finished in the US. Make the tax heavy enough that the tax adjusted price will reduce sales and cause US built and sourced products to be less expensive than imports. You would also need to get rid of all free trade agreements the US has.

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avatar Mike

Just get the rich to invest more in tax free muni bonds or something similar.

I’m sure the Dem’s will be happy that they’re investing in the state gov’t and the rich don’t have to pay as much taxes.

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avatar Luis

Interesting topic for an article, well heeled, but you picked out Paul Ryan on half his plan. Mr Ryan is for a two tiered tax on income. I’m sure he would only propose cutting capital gains as a package deal only. In that case Mr Romney’s effective tax rate would be 25.8% under Ryan’s plan.Disclosure, I am by no means a Republican.

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avatar Steven J Fromm

Anyone really interested in this problem should read The Betrayal of the American Dream by Donald L. Bartlett and James B. Steele. This should be must reading for both our candidates and they should be forced to discuss the findings of these two Pulitzer Prize winners and have been on this problems for decades. The Philadelphia Inquirer ran an excerpt of the book and an Q&A with them as to what can be done. They offer some very sound steps with reasoning as to why. Trust me, no one in Congress and the two candidates are talking about these solutions.

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