3 ms·

The argument that taxes on capital gains is a double tax is crazy. The original principal isn't taxed, just the gain - no double tax. There's no reason why cap

by Bricejm 15y ago

The argument that taxes on capital gains is a double tax is crazy. The original principal isn't taxed, just the gain - no double tax. There's no reason why capital gains shouldn't have a progressive marginal tax rate like ordinary income.

waqf 15y ago
That's a reasonable point of view, but here are two (different, independent) possible rebuttals: 1. You ignored inflation. Your argument gives a justification for taxing the real gain, but current CGT taxes the nominal gain, which is generally greater. So the difference between the two is taxed twice. 2. Let's do some math. For simplicity let's consider a world with no CGT at all, only income tax. Say I earn $10k income and pay 40% income tax, leaving me with $6k. Then I invest it and gain 400% on my investment, so I have $30k. If I had not been subject to income tax, I would have taken home the entire $10k I earned; I would have invested it and gained 400%, leaving me with $50k. But in fact I only have $30k. Since, out of my total (admittedly hypothetical) tax-free profit of $50k, I have lost $20k owing to the imposition of a 40% income tax, how can you say my capital gains have not already been taxed?
- pacala 15y ago
  Re 2. You have not lost any money. You gained money proportional to the money you invested. Your capital gains have not been taxed. What is your point?
  - waqf 15y ago
    My point would be that since I already have 40% less money than I would have had in the absence of taxation, it seems that I have already endured my fair share of the tax burden. (For simplicity, forget about progressive taxation and assume that flat taxes are fair. Just compare me with the guy with a $50k salary who also gets to keep $30k of it.) As with everything, it comes down to an argument about what's "fair".

3 ms·

The argument that taxes on capital gains is a double tax is crazy. The original principal isn't taxed, just the gain - no double tax. There's no reason why cap

by Bricejm 15y ago

waqf 15y ago
That's a reasonable point of view, but here are two (different, independent) possible rebuttals: 1. You ignored inflation. Your argument gives a justification for taxing the real gain, but current CGT taxes the nominal gain, which is generally greater. So the difference between the two is taxed twice. 2. Let's do some math. For simplicity let's consider a world with no CGT at all, only income tax. Say I earn $10k income and pay 40% income tax, leaving me with $6k. Then I invest it and gain 400% on my investment, so I have $30k. If I had not been subject to income tax, I would have taken home the entire $10k I earned; I would have invested it and gained 400%, leaving me with $50k. But in fact I only have $30k. Since, out of my total (admittedly hypothetical) tax-free profit of $50k, I have lost $20k owing to the imposition of a 40% income tax, how can you say my capital gains have not already been taxed?
- pacala 15y ago
  Re 2. You have not lost any money. You gained money proportional to the money you invested. Your capital gains have not been taxed. What is your point?
  - waqf 15y ago
    My point would be that since I already have 40% less money than I would have had in the absence of taxation, it seems that I have already endured my fair share of the tax burden. (For simplicity, forget about progressive taxation and assume that flat taxes are fair. Just compare me with the guy with a $50k salary who also gets to keep $30k of it.) As with everything, it comes down to an argument about what's "fair".