From: Brad Dolan <bdolan@use.usit.net>
Date: Wed, 14 Aug 1996 16:30:22 +0800
To: "Timothy C. May" <tcmay@got.net>
Subject: Re: Capital and Taxes
In-Reply-To: <ae36838e05021004b025@[205.199.118.202]>
Message-ID: <Pine.SOL.3.91.960814013949.25101A-100000@use.usit.net>
MIME-Version: 1.0
Content-Type: text/plain




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