Off-Topic

My stance on this issue is really driven by how the law is structured. Conceptually, the idea of taxing capital gains on money that was already taxed as income seems morally wrong. In addition, if the rule is applied to, say, households with income of $300k or more, this rule doesn't seem to really be targeting the "wealthy". It also seems like it is targeting working people.

On the other hand, I see a guy like Mitt Romney who, in honor of a new Wire thread, has essentially become "the Bank" a la Marlo at the end of the series, and I don't think the rule is terrible. If capital gains are used to serve as a person's primary income, it isn't necessarily right that these people can outgrow regular income tax.

The rule really doesn't matter, however. It won't make a dent in the deficit. Ideally, we'd cut our spending in a rational way and decrease taxes, but we don't live in an ideal world. The right approach would be to maintain level spending in the short term, introduce a slight tax increase in the short term, pull back on spending more heavily in the long term, and then drop taxes as we reduce the deficit. Unfortunately, that assumes a government that doesn't spend to win votes, understands that you can't outspend income forever, and isn't willing to sacrifice temporarily to win long term prosperity.

In conclusion, politics gets in the way of functional government.

that $47 billion sounds really low. At 20% differential in rates, it equates to $235 billion in LT gains over 10 years or $23.5 billion every year. People are better investors than that.

Just for starters, there was $68 billion in private equity raised in the first quarter of 2012 alone. Assuming those funds did a modest 1.5x (likely 10-12% IRR) that's $7 billion in gains just there, and assumes all the LP's were tax-exempt.

Because the track record on the 'cut spending' part is not too good. Many people don't trust any politician to actually cut spending. Raising taxes only makes it easier for them to add to spending.

Remember all those threads where you talked about how irresponsible middle America is in its spending habits? That's our federal budget ... except times a billion.

If you see someone who can barely afford groceries buy a BMW, what's your first reaction? Do you just jump past the fact that they bought a BMW and talk about how they'd have $47 per week more if they worked a few more shifts at McDonalds?

I am by no means a financial man, but i know politics well from working closely to elected government officials. Cut spending is much harder than just saying it. It means you are going to have to have elected officials be ok with pissing off many of their constituents. People are all for cutting spending until their road has a pot-hole or they have to wait in line twice as long at the Social security office because they cut back on staff. Likely something they are not willing to do as most like the idea of being reelected. You add that to raising taxes and no politician will go for it whether it is the right thing to do or not. They like the power and fame that come with the job and voting to do one if not both of those is usually a good way to not get reelected and have your constituents bug you 24hrs a day.

I used to think this for a long time but aren't capital gains not taxing your initial investment, only the extra money that you make? So, you paid taxes on the $50k you put in to start but if it grows to $55k in a year aren't you just taxed on that extra $5k that actually has not already been taxed? How is it different if I make that $5k through the stock market vs if you make it at your job?

The tax code is nothing if not a way of incentivising behavior. Why is your home mortgage interest deductible? Because we want to encourage home ownership. Why are charitable donations deducitble? Because we want to encourage charitable donations. Why are investment gains taxed lower? Because we want to encourage savings and investments.

We have some of the lowest savings rates of any industrialized nation in the world. The personal saving/spending habits of Americans are almost as bad as that of its government. Why would we want to further discourage saving and investment?

The comparison shouldn't be between what you make at your job and what you make in the stock market. The better comparison is whether you spend your excess income or save/invest your excess income. A lower capital gains rate encourages you to save/invest that income.

I certainly see both sides of the spectrum and this is a tricky issue... but this is a dreadful argument.

National sales tax, wipe out the current tax code along with payrolls for 90% of the IRS and pick up the revenue black market operations. Rich people would pay more taxes since they consume more. People could control their own taxes better with spending habits. You could even throw in some tax exempt categories such as food, necessary medical care, rent/mortgage, etc.

wat, good luck with implementing that!

I had to post this, even from my tax vacation.

Its not such a black & white issue on cap gains. There are a lot of investment vehicles incentivized to invest in small/start-up businesses given the cap gains rate on exit. As you alluded to, there is incentive to build and potentially exit a business with the cap gains rate being what it is. Now I don't think the 2 & 20 hedgies should necessarily benefit from the cap gains rate, but as all tax policy goes, it is much more nuanced than just raising the rate.

I think it would be detrimental to raise rates significantly on gains from the sale of businesses.

It's really very simple the way to get us out of our mess: it's not higher tax rates that are needed, it's more tax-payers paying taxes..so unleash the machine and grow jobs in this country and problem solved.

This is all a moot point unless entitlements are addressed. They are the problem.