From: lion@netcom.com (carl loeber)
Subject: Re: Capital Gains - Wrong Victim
Date: Sun, 12 Apr 92 05:55:16 GMT
Organization: Netcom - Online Communication Services  (408 241-9760 guest) 


REgarding thoughts on capital gains tax differentials.
and special real estate effects.

I have also thought that capital gains taxes do prevent some sales,
but the promoting effect on speculation by tax differentials
probably raises prices even more.

Also the inequity of young wage earners paying relatively higher
taxes, because others are getting lower differentials, hinders them
from saving for down payments for purchases, tending to lower
prices.

A major point is that although our folks have paid long for their
homes, the increase in asset value had little to do with their
inputs, except somewhat in building the general economy of the
area.  Since they recieved in a sensne an  "unearned" windfall, is it
asking too much that they pay the some tax as someone who worked
for the money?

Here is a letter I recently wrote to Rep. Archer 
(R Texas) argueing against inequities in taxation from
a free market, affeciency economic perspective, and from
a equity, equal treatment moral position.

Best Regards, Carl    lion@netcom.com
San Jose CA (408) 294 9206

House Ways and Means Committee            March 1, 1991
U.S. House of Representatives
Washington D.C.

Re: Capital Gains Income Tax Differentials

Dear Congressman Archer:

You know that land price forms the basis of real estate
prices.

Your policy of non-market supports (tax preferences) for
real estate (land prices) weakens the market pricing
mechanism which tends the following:
-Raises market price
-Adds to instability because price is not founded on
economic use value

Raises the price above the rational economic (free
market) value because it skews the decision making value
of the pricing mechanism by grounding it on speculation
based on financial gain from government fiat tax gain
rather than real productive value (economic use).

These in turn:
Make real  estate less affordable and more of a risk.
     (with affordable and stable prices the construction
     industry could go to work building.)
Stress the financial credit system which underwrites the
purchace  price.  (Leading to losses and failures, and
          on to politically motivated general tax funded
          bail-outs)

Because prices have been inflated by government fiat
(non-market forces) in the past, under pressure and
suasion of private interests, they now have to decline,
as tax subsidies are reduced, to reach a true market
level, reflecting real value in economic and productive
terms.  Pumping them up again with new government
preferences is not the answer.

Republicans are supposed to emphasize the validity of the
free market and the price mechanism, but unfortunately it
seems they forget these principles when the market goes
against them, and only adhere to them when prices go in
their favor, or that of their supporters.  

Sincerely,



Carl Loeber

P.S.- In case you really believe that capital gains
differentials amount to a "leveling of the playing
field", I send the following analysis.  Also please see
my testimony before this committee February 6th, 1992.

Regarding the argument that capital gains reflects
nominal (inflationary) gains and should therefore be
indexed or differentiated for income taxation:

The price includes tax liability.
The market takes taxes into account.  In other words the
cost of taxes is taken into account by the market in
determination of the price, so that part of the gains is
actually "set aside" or allocated by the market for the
payment of taxes.

The price gain is a product of society.
Real estate price is specific to a certain area
(location) and price increase (in true market value) is
mostly (except when development is done) a product of the
inputs of society at large, of that surrounding
community, not the individual property owner himself.  
When the owner does do large development, the price
increase is over a shorter time period, when there is not
much general (macro-economic) price inflation; it
actually represents earned income anyway.

Taxes have already been deferred.
Because capital gains tax is only paid at the time of
sale of the property, taxes on that income have actually
been deferred over the period in which the increase in
value accumulated (and not paid as they "occurred"). 
That tax savings by the owner (and loss to the
government) probably is enough to offset the tax
liability attributed to nominal (general inflationary)
gains.  The owner may however find himself in a higher
tax bracket, though most of this type of income is
already in the highest bracket.

General price inflation hurts many people.  Government
should concentrate on insuring the real value of money by
correct fiscal policy and monetary management, rather
than trying to compensate the victims, especially if they
are holding a scarce, vital, and unproducible good such
as land.  Individual homeowners are nevertheless
protected from capital gains income tax liability in two
ways already.  By the "Seniors" and the "Roll-over"
exemptions.

Preferences for "unearned" income?
Capital gains is "earned" income in the case of real
estate development or retained earnings of public
corporations reflected on their share price.  So let them
pay the same tax as anyone else who works for a living. 
Other capital gains is from speculation.  Shall the
gambler pay less tax on his income than the producer?

Most gains go to morbid speculation.
Most capital gains goes to real estate, and does not
derive from inputs of productive investment.  Only a
minor portion comes from actual development.  By
preferring this type of income you take away from other
uses of capital that are truly productive, that improve
foreign exchange, advance technology, and require skilled
and well-paid workers.

Other businesses take risk too.
Not only real estate developers and public corporations
take risk.  All businesses do whenever they invest money. 
This is a good reason to forget capital gains preferences
and go for expensing of equipment, R&D, and plant and
improvements.

Workers on a wage also take risks. 
That their company will stay in business by correct
management, that their supervisor will recognize their
value and promote them, that they will not be injured on
the job, that their wages will keep up with inflation. 
Inflation  of home prices for instance.  Inflation in
fact, fostered by capital gains differentials.

Another reason to move away from dependence on capital
gains preferences is that workers should also gain income
from capital themselves, as well as from their labor. 
They need to augment their current income by payment of
dividends, not just their assets by advancement of the
stock price of their ESOP shares.

The Democracy Project seeks to remove the necessity for,
and influence of, private money in the political system
by instituting a publicly operated one.  To make
elections meaningful, by providing the environment
conducive to a choice of candidates, and to  publication
of information about them before the election; leading to
genuine representation by legislators after the election,
by removing the perceived need for lobbyist money.

The Democracy Project: for Government Of, By, and For the
People through meaningful elections conducive to Choice,
Information, and Representation.

It used to be that candidates could literally pay voters
for votes.  And that they printed their own ballots. 
We've outlawed the first, and mandated an alternative for
the second.  Can we now move further away from the ballot
box and legitimize the other aspects of elections?