You're a hardworking waitress/bus
driver/ditch digger/lawyer/doctor. You save your heavily taxed, hard-earned money, trying to get
ahead. You don't spend it all on computer games, beer or rock
concerts. One day, you have saved enough that you say to yourself, "I
have been working hard for money all these years. It's about time my
money started to work for me."
You decide to invest your hard-earned
money in your brother-in-law's wind-powered solar panel factory.
Unfortunately, he goes broke. There goes your money. Don't go crying
to President Obama: You built that, not him.
You're still an honest, conscientious,
hard-working stiff. You deny yourself weekly trips to the movies and
fancy clothes. You scrape together another nest egg. You invest in
your friend's solar-powered wind vane making plant. Unfortunately, it
also goes bankrupt, and your savings are wiped out again. Don't go
crying to President Obama; you built that, not him.
You're not the type to give up when
faced with failure. Surely, the third time's the charm. Again you
save your money until you have enough to invest. This time, you
invest in your brother Sam's widget-making enterprise. Eureka! This
time you hit it big. Widgets are just the thing, the latest craze.
Sam has to hire 150 workers to produce the hot items. You're raking in money hand over fist. Time to celebrate!
Not so fast, you rich fat cat. You
didn't build that. Didn't you have to drive on Uncle Obama's roads
that he built just for you? Better fork over 15 percent of your
ill-gotten gains or visit Uncle Obama's prisons.
That, Mr. Biden, is capital gains. The
rate is not 14 or 15 percent, as you dishonestly keep harping. All
that money was already taxed at the regular income rate, depending on
your income level. You save it up and invest it, and anything you
earn is taxed again -- double taxation; anywhere upwards of 35
percent. Short-term capital gains are taxed at the regular income tax
rate. And, as we have seen, if you invest it and lose it, tough luck.
The reason capital gains earnings are
taxed at a lower rate is twofold. One: It has already been taxed
once, at the regular rate. And Two: the lower rate encourages risk
taking, which grows the economy and provides jobs, which is good.
That is capitalism the way it's supposed to work.
OK. That covers the Joe Bidens of the
world. Now we can talk as adults. In the real world of investing,
only a few cases resemble my illustrations. More often it is people
selling a second house or rental property, or even more likely, rich
people like Mitt Romney buying and selling businesses and stock
portfolios. But however you slice it, capital gains income has
already been taxed at the regular rate, then earnings are taxed again
at the 15 percent level. And when investments succeed, the economy
succeeds.
Where it gets worth having a serious
debate is when an individual's income comes almost exclusively from
capital gains. It is still hard-won capital, but it puts a person in
a different league from someone who has two houses and wants to sell
one. It might be fair to consider a "progressive" capital
gains tax for people whose primary source of income comes from capital gains.
But the Fair Tax would be even -- fairer.
