economicmultipliers_102

Economic Multipliers (102)

Do you know what these are?

They help CREATE wealth in systems.

Taxing capital gains like ordinary income is an economic multiplier for any nation that values the labor of ALL of its citizens.

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Do you know what capital gains are? Capital gains are income derived from owning investments.

If an asset (the capital) generates an income stream (profit, interest, dividends, royalties, etc.), that is a capital gain.

A homeowner can easily argue that if they sell a house 20 years after they bought it for more money, they should not have to pay a capital gains tax on that profit because they still need a place to live and will be buying (replacing) housing in a market where everything now costs more. For their primary residence, you could not really say they have ‘gained’ and I agree. Most do not buy their houses to create an income stream even though they want it to appreciate in value: Most would say their house always costs them money.

But profit derived from ‘annual’ income falls into another category.

For decades, people have argued (as an example) that dividends paid on stocks should be exempt from income tax because the corporation (prior to the distribution of the dividend) paid income tax on the company’s profits. Taxing the money again would be ‘double taxation’ on the same money.

Likewise, similar to owning a house, if you own stock in some company (or some other income producing asset), in later years if you want to replace that asset with something else, the something else usually costs more.

The easiest way to identify whether ‘gains’ should be taxed as ordinary income is to look at how individuals feel about ‘losses.’

When people ‘invest,’ they normally assume some risk. The nature of risk is that you can win and you can lose.

If a person wants to offset any other ‘ordinary income’ with any capital losses, then any capital gains on those same types of assets should be taxed like ordinary income.

Homeowners are not allowed to offset their ordinary income from taxable wages if they lose money on their primary residence: Hence, their gains on a primary residence should never be taxed.

Plus, the argument about double taxation has lost all meaning:

• • Many corporations pay no income taxes even as they are paying out dividends because tax shelters shield any income (profit) from taxation. You cannot say that that money is ‘double-taxed.’

  • Some corporations even borrow money to pay out dividends when they can post no (even sheltered from taxes) profit. Imagine getting an income stream from a company when a profit was never made and thinking you should pay no taxes on it — no double taxation there.

When people earn money (via direct labor or otherwise), they want to keep it. Everyone does. But taxes are only fair IF you believe everyone is contributing based on their opportunities and income and they actually are.

You can’t build roads and buildings and water treatment facilities or educate children or have police, fire and security services if you don’t pay taxes.

Just remember, when someone says that capital gains are taxed twice, that may or may not be so.

Ask them, if they have a capital loss, whether they want to offset any other taxable income with their loss.

IF they want to offset taxes on other income with a loss, they are basically saying to you that although they don’t want to pay taxes on their capital gains, they really believe that they should do so.

Keep in mind that laborers who help create the profits for any business (capital gains are only possible if, on average, people create wealth) could argue in all sorts of ways that they also get ‘taxed twice’ or three or even four times: Income after payroll tax deductions pays property taxes (renters pay property taxes as part of their rent), sales taxes, municipal fees, school fees, etc.

Try to convince the person who works 40 hours a week who never sees all the money they’d like to see in their paycheck that a distribution from the company that they work for (the profit that they helped create) should not be taxed (if ANOTHER person is getting it) as ordinary income. (See P.S.)

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P.S. Business investment is an interesting area because the greater percentage of the population really wants to show up somewhere, work for a certain amount of time and then walk away with a paycheck.

People who invest in businesses … particularly those who invest in businesses which create jobs … are a rare breed IF they are also risking some of their own money (SBA loans and other government subsidization and financing many times help shield people from risk).

Very few people who like ‘paychecks’ think about the fact that business owners (particularly small business owners) have to make payroll before they can pay themselves. If they make a significant amount of money over a short period of time, that income might need to be ‘averaged over’ periods when they make very little or might be needed for replacing equipment, upgrading facilities and a whole host of other expenses that ‘workers’ never assume direct responsibility for.

Individuals who invest in other people’s businesses (who desire to make a ‘capital gain’) also help take on the ‘risk’ that goes along with owning and running a business. Many businesses could not exist (and the jobs that are created would also not exist) if these investors did not take on the risk.

If you don’t want other people to ‘make’ (earn) capital gains, think twice unless you yourself plan on hiring everyone who needs a job.