Another look at capital gains

Much has been written about tax on capital gains as of late. Most of the argument for a lower tax rate for capital gains revolves around the belief that the lower tax rate encourages investment which creates jobs. Actually history will prove that argument to be totally wrong. To begin with looking a periods with lower taxes on capital gains, one would see just the opposite result...lower capital gains historically results in fewer jobs and higher unemployment. The reason for that can be summed up in a single word: EXTRACTION. Most capital gains are the result of an exchange of assets or trade from one entity or individual to another. (BTW That’s why trades take place on exchanges) When a share of AT&T is traded, the company, AT&T does not receive any proceeds from this transaction and does not have the use of the proceeds to purchase equipment, build plant, or take any other action that might result in economic growth. What actually happens is that funds used to purchase various equities are removed or extracted from the economy and, if anything, are counter productive in creating additional economic activity. The argument could easily be made that capital gains should have higher tax rated than ordinary income since that money is invested in a product that, in reality, has no economic value. Unlike plant, machinery, or an actual product that requires raw material and labor, an equity investment, when not an entry in a computer, is nothing more than a piece of paper. An equity investment is a subtraction of the purchase price from the economy and, in reality, should be treated as such from a tax standpoint. Additionally, equity investments in the form of options are too often used as a way to avoid taxes on earnings from work. When an individual receives stock or options to purchase stock as part of a compensation package, the value of that receipt escapes any and all payroll taxes as well as being taxed at lower rates that income tax rates at present. In the overall economic scheme of things there is not an overall benefit to justify the lower tax rate. Finally, there is the matter of dividends. While some make the argument that income paid in dividends are taxed twice: once at the corporate level, and a second time at the personal level keep in mind the following. To begin with dividends paid by a corporation come from funds that remain after all expenses including taxes are deducted from receipts. Second, considering the explosion of S Corporations, that are not taxed on their profits but pass all profits on to shareholders as dividends. dividends are not taxed until such time as they are passed on to the S Corp stockholders. While some in Congress may consider S Corps to be small businesses the reality is companies like Koch Industries and Pilot/Flying J are examples of S Corporations that are anything but small. S Corps are ways a business owner can pay himself or herself a small salary that is subject to FICA, Medicare, and other payroll taxes yet take a much larger income in the form of S Corp dividends that escape those additional taxes while, in some cases, being taxed at a lower rate than wages. Finally, the lower capital gains tax rate are actually enjoyed by a few. This is just another fable that is promoted by the wealthiest Americans to ensure that they continue to amass wealth as well as pay as low a tax rate as possible. The lower tax rate for capital gains income has but a single purpose and that is to make certain that a very few taxpayers continue to pay less than their fair share of taxes and that a majority of tax payers pay more than their fair share of taxes.