Captial Gains for Dummiecrats

Let's make this so simple even Joe Biden can understand it.

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.