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Capital gains taxes are double taxation...the company already pays income taxes on its profit.

nostrademons 5y ago
That would be dividends. Capital gains (in theory at least) are the result of a company investing in its future earning capacity, eg. hiring scientists for R&D, building a new factory, spending money on SaaS upgrades, etc. These all come out of the income statement as expenses, and aren't recorded as profit, so the company doesn't pay corporate taxes on them. You'd potentially have a point for buybacks, which are usually paid off of retained earnings that have already been taxed and yet raise the share price and cause capital gains. This is the same issue that qualified dividends have though.
- atdrummond 5y ago
  Those future earnings from present investments, when finally realized, will be taxed unless the corporate income tax is eliminated.
  - nostrademons 5y ago
    But someone who sells a security backed by the cash flows from those future investments is receiving cash before the cash flows have materialized (or been taxed). There's also no guarantee that they will ever be taxed. Take, for example, a startup that continually reinvests all profits in additional R&D, sales, and marketing, gets increasing large revenue streams, but then sells the whole company to a bigger one before ever realizing a GAAP profit. Capital gains tax is Uncle Sam's way of taking a cut on all the intermediate owners who benefit from the business reinvestment but know how to turn profits into larger market share.
kadoban 5y ago
By that definition, everything is double-taxation. The check I get from my employer comes out of the company profits too.
- deleted 5y ago
  [deleted]
- valleyer 5y ago
  In many jurisdictions, including the United States, an employer does not pay income tax on the money they pay out in payroll. https://en.wikipedia.org/wiki/Corporate_tax https://en.wikipedia.org/wiki/Corporate_tax
  - ryandrake 5y ago
    But that money will be taxed when it's used to pay your electrician. Then, that money will be taxed again when your electrician uses it to buy something from a shop keeper. And then, that money will be taxed again when that shop keeper pays his employee. Then that money will be taxed again when the employee gets his dry cleaning done. There's no law or sensible principle that a dollar should be taxed exactly once in its entire existence.
boublepop 5y ago
Double taxation is when one entity is taxed double, not when multiple independent entities are taxed based on value being transferred. I also pay tax on my income before I pay it to a company for their services, but they still need to pay tax on that money.

That would be dividends. Capital gains (in theory at least) are the result of a company investing in its future earning capacity, eg. hiring scientists for R&D, building a new factory, spending money on SaaS upgrades, etc. These all come out of the income statement as expenses, and aren't recorded as profit, so the company doesn't pay corporate taxes on them. You'd potentially have a point for buybacks, which are usually paid off of retained earnings that have already been taxed and yet raise the share price and cause capital gains. This is the same issue that qualified dividends have though.

atdrummond 5y ago
Those future earnings from present investments, when finally realized, will be taxed unless the corporate income tax is eliminated.
- nostrademons 5y ago
  But someone who sells a security backed by the cash flows from those future investments is receiving cash before the cash flows have materialized (or been taxed). There's also no guarantee that they will ever be taxed. Take, for example, a startup that continually reinvests all profits in additional R&D, sales, and marketing, gets increasing large revenue streams, but then sells the whole company to a bigger one before ever realizing a GAAP profit. Capital gains tax is Uncle Sam's way of taking a cut on all the intermediate owners who benefit from the business reinvestment but know how to turn profits into larger market share.

kadoban 5y ago

By that definition, everything is double-taxation. The check I get from my employer comes out of the company profits too.

deleted 5y ago
[deleted]
valleyer 5y ago
In many jurisdictions, including the United States, an employer does not pay income tax on the money they pay out in payroll. https://en.wikipedia.org/wiki/Corporate_tax https://en.wikipedia.org/wiki/Corporate_tax
- ryandrake 5y ago
  But that money will be taxed when it's used to pay your electrician. Then, that money will be taxed again when your electrician uses it to buy something from a shop keeper. And then, that money will be taxed again when that shop keeper pays his employee. Then that money will be taxed again when the employee gets his dry cleaning done. There's no law or sensible principle that a dollar should be taxed exactly once in its entire existence.

boublepop 5y ago

Double taxation is when one entity is taxed double, not when multiple independent entities are taxed based on value being transferred. I also pay tax on my income before I pay it to a company for their services, but they still need to pay tax on that money.