On Tue, 13 Aug 1996, Timothy C. May wrote:
But this 38% rate doesn't even tell the whole story. Suppose that I want to make a $100K investment in this company my friends are trying to start. Money has a cost, both in the "rent" that is charged on it, or the "rent" that _could have_ been charged to another for an alternate use, and on something else that's terribly important: taxes must be paid on other assets sold to raise the $100K. For example, if I own shares in Intel, bought many years ago, I have to sell $160,000 worth of Intel stock, send a $60,000 check to Uncle Sam and Uncle Pete, and then send the remaining $100,000 to my friends. If the new investment *doubles*, my $100,000 gain is taxed at 38% and I'm left with a gain of about $62,000.
It doesn't take a number theorist to see that I may as well have not even bothered. So long as I just sit on the Intel stock, no taxes are owed. Sounds like a no brainer to me.
Yes, taxes will _someday_ have to be paid...but many of us are hoping, praying, and pleading for a cut in the capital gains tax rate...at least a rollback to the 22% rate of yesteryear (and 4% or less in states). This huge "backlog" of unrealized capital gains (aka gains on paper, but not yet taxable) is what is being spoken of when people like Jack Kemp and Steve Forbes speak of "unleashing" the capital gains now tied up due to the high tax rates.
Now imagine that I want to make that $100K investment or, more realistically, that I want to invest $100K in my kid's college education. I'm going to have to earn wages of $160K and pay $60K in tax. It would make me cranky if the guy next door could just clip $100K of coupons, tax free, to pay for his kid's education. While I'm sure Steve Forbes could, I can't think of a moral argument why income from selling stock should be taxed at a rate lower (or higher) than than income from wages. Jamie Whitten, late chairman of the House Appropriations Committee once said, "All anyone wants is a special advantage over the next fellow. Understand that, and you've understood the intent of every law ever passed." I think that applies to tax law. bd