4 ms·

How about making the capital gain and normal income tax equal?

by yuhong 12y ago

7Figures2Commas 12y ago
That's called short-term capital gains.
zaroth 12y ago
A lot of capital gain, particularly for the middle class, is actually inflation. You buy a house, pay your mortgage for 30 years, and perform regular maintenance. After 30 years your basis is nearly $0 and the market price has gone up 4x-10x what you paid. Now you've paid for the house once, plus all the local taxes year after year. Trivia, how much more should you have to pay? Currently the basis of the house would step-up to market value when you bequeath it to an heir, so no taxes are due. If you take that away, there's 30% of the value of the house in federal and possibly more in state taxes that would have to be paid. A $500k exclusion is grossly insufficient. Home ownership is the golden road to middle-class. A tax policy like this is akin to saying you have to be able to buy the house all over again. E.g. If you can't afford to pay a 20% down payment (to the IRS) on the house you just inherited then you can't keep it. To put some hard numbers in an example, your parents buy a $120k house with a 30 year mortgage in 1970. Due to nothing but inflation the house is now worth over $700k. That is not current income, and should not be taxed as current income. That's (one reason) why long term capital gain is taxed at a lower rate. In many cases it's just double taxation on the same dollars over time.
- yuhong 12y ago
  Good point, though I was thinking about doing it by reducing the income tax.
PhantomGremlin 12y ago
Been there, done that: https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 But that's ancient history even though it was less than 30 years ago. Politicians can't resist tinkering with the tax code. It's always for a good cause, e.g. "think of the children".

4 ms·

How about making the capital gain and normal income tax equal?

by yuhong 12y ago

How about making the capital gain and normal income tax equal?

7Figures2Commas 12y ago
That's called short-term capital gains.
zaroth 12y ago
A lot of capital gain, particularly for the middle class, is actually inflation. You buy a house, pay your mortgage for 30 years, and perform regular maintenance. After 30 years your basis is nearly $0 and the market price has gone up 4x-10x what you paid. Now you've paid for the house once, plus all the local taxes year after year. Trivia, how much more should you have to pay? Currently the basis of the house would step-up to market value when you bequeath it to an heir, so no taxes are due. If you take that away, there's 30% of the value of the house in federal and possibly more in state taxes that would have to be paid. A $500k exclusion is grossly insufficient. Home ownership is the golden road to middle-class. A tax policy like this is akin to saying you have to be able to buy the house all over again. E.g. If you can't afford to pay a 20% down payment (to the IRS) on the house you just inherited then you can't keep it. To put some hard numbers in an example, your parents buy a $120k house with a 30 year mortgage in 1970. Due to nothing but inflation the house is now worth over $700k. That is not current income, and should not be taxed as current income. That's (one reason) why long term capital gain is taxed at a lower rate. In many cases it's just double taxation on the same dollars over time.
- yuhong 12y ago
  Good point, though I was thinking about doing it by reducing the income tax.
PhantomGremlin 12y ago
Been there, done that: https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986 But that's ancient history even though it was less than 30 years ago. Politicians can't resist tinkering with the tax code. It's always for a good cause, e.g. "think of the children".