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Eric S.

Capital Gains

Just like many other citizens, I believe that every American is entitled to a decent standard of living. Programs such as health care, social security, education and many others are all essential programs but have been financially neglected by the federal government in recent years. The typical way in which people could bring in the funding to pay for these programs, would be to raise the income tax rates. Others believe that by raising income taxes, the government limits the amount of money people have to spend, thus damaging the economy. This idea only applies to people in the lower tax brackets, because people in the higher tax brackets won’t have any way to spend that extra money, instead they will either put it in a bank or they will invest it. The point of view that I have taken on this issue of taxes is that in addition to placing higher tax rates on higher income people and reducing the tax of the lower and middle classes, the government should enact a stiffer capital gains tax.

Capital gains tax is the tax on economic gains from investments, for example, in the stock market. Gains in the market place are measured by the difference between the price a stock is bought and later sold. If ten thousand of a certain stock was bought at $10 a share, and then later sold for $35 dollars per share, the gains would be (35x10,000) – (10x10,000) = 250,000. Unlike income tax however, this is only marginally taxed, which is unfair. An unfair aspect of this set up is that people, who work hard for their money, end up paying more than extremely wealthy people who are able to invest surplus money. If possible, I would change the tax code, so the capital gains tax would be 25% for a $100,000 gain and above and the income tax for the middle and upper-middle tax brackets would be 15%. This is approximately the opposite of the present day tax code, which entails that income tax in the middle and upper middle tax brackets is about 25% depending where on the spectrum someone falls. Also it would be a sliding scale so the more people made off of gains would pay a higher percent of their profits. This would allow for people in the lower and middle classes to spend the extra money that they would get from the tax break, boosting the economy, and allow for funding of more social programs for everyone. This approach is also more sensible, in that
someone who makes their money the hardest way possible, by working for it, gets to keep more of their money than someone who just passively invests and realizes gains.

The main opposition to the increase in capital gains tax argues that it will limit a free market, and will discourage investment, thus hurting the economy. This point of view is wrong for a number of reasons. The idea that it will limit a free market is absurd, mostly because as it is right now, capital gains tax already exists. The idea that it would discourage investment is also not convincing because people who have money to invest in the stock market would still have surplus money and they would have to put it somewhere, and despite the increase in taxes they would still make money from their investments. The means by which capital gains tax could be raised are also quite easy, because guidelines for capital gains already exist in the tax code.

The real world effects of raising capital gains tax could be enormous. The economy would flourish, and social programs could be given adequate funding, and allow citizens to satisfy the basic needs they have. It makes sense, because people like Bill Gates who make $63 billion on investing ought to pay more taxes than a hard working American who makes $16,300 annually. It would not limit the free market, rather it would allow for more people to take part in it, because more working people would finally be given an opportunity to invest in the market. The idea of raising the capital gains tax is not politically popular now; however, if I could change one law, it would be to raise capital gains tax.

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