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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
by 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 agoThose future earnings from present investments, when finally realized, will be taxed unless the corporate income tax is eliminated.
- nostrademons 5y agoBut 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.