Newsgroups: talk.politics.misc,alt.politics.elections,alt.politics.clinton,alt.politics.bush
Subject: Re: why progressive tax rates (was Re: Clinton's Economic plan attacked)
From: john@anasazi.com (John R. Moore)
Date: 19 Aug 92 14:28:04 GMT
Reply-To: john@anasazi.com
Organization: Anasazi Inc, Phoenix AZ USA

Keywords: 

In article <16847BCBC.MEDELMA@cms.cc.wayne.edu> MEDELMA@cms.cc.wayne.edu (Michael Edelman) writes:
]High capital gains taxes combined with ordinary levels of return on investment
]and low inflation can result in effective marginal tax rates exceeding 100%.
This is true, but your example of a bank account is not, since the tax
applied there is ordinary income tax (interest, not capital gains).

Consider the following case of home ownership by someone in the 20%
bracket (ie, not rich):

			Dollars		Constant Dollars
Purchase Price:		 80000		 80000
Sales price after
  10 years of 4%
  inflation:		116810		 80000
Gain			 36810		     0
Tax on gain		  7362		  7362
After tax gain:          29448		  -7362

Thus, our current capital gains tax REMOVES wealth from individuals
who have no real gain. I buy my house, I sell it 10 years later with
no real gain, and the government lifts $7000 from my pocket. This isn't
taxation... it is theft! Of course, if I keep buying new houses
at a higher price, the tax is deferred.... this is just a meddling in the
market for the benefit of real estate agents. Once you put a large part
of your equity in your house (which most americans do), you are bound
by the tax laws to either stay invested to that level until you reach 57,
or pay confiscatory taxes on phoney (inflation created) gains.

These numbers work for investments in means of production also. It means
that a company must have a larger real growth rate, which translates into
a much larger required dollar growth rate, which means the company must
take higher risks or incur more debt.

Even if one believes that we should have capital gains taxes (which
I do not, except for perhaps short term gains), it is hard to see how
indexation of those gains (and of interest) can be opposed, but the
soak-the-middle-class democrats oppose it. To be even marginally fair,
you would need to compute capital gains in constant dollars, and subtract
the inflation rate from the interest rate when taxing interest.

If more people realized that this silliness in taxes unfairly hurts
EVERYONE directly (not indirectly through impact on growth), they
might argue for more rational taxing.

When was the last time YOU saw the network news showing how the
capital gains tax clobbers all homeowners (either directly or by
locking them into home ownership)? When did they last point out that
the taxes on gross interest, rather than real interest, hit the
middle class hardest (since the middle class is less likely to have
interest bearing savings accounts, etc)?

The current capital gains tax and tax on interest would better 
be called wealth taxes.


-- 
John Moore NJ7E, 7525 Clearwater Pkwy, Scottsdale, AZ 85253  (602-951-9326)
john@anasazi.com ncar!noao!asuvax!anasaz!john anasaz!john@asuvax.eas.asu.edu
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