These three taxes also often combine to add a second, third, and even a fourth, layer of taxation on income. The only way to effectively eliminate this multiple taxation of income is to eliminate these taxes. Since the size of the capital gain has already been adjusted downward to reflect the taxes paid by the corporation on its retained earnings, investors are being double-taxed by having their capital gain reduced again by the capital gains tax. Therefore, the level of capital gains earned by an investor has already been reduced because of the tax on corporate income. This has the effect of raising the cost of capital for corporations by reducing the rate of return to investors.
Investors then demand higher returns or withdraw their investment.
The estate and gift taxes have an even more devastating impact. These two taxes are the primary culprits for triple and even quadruple taxation of income. Take the estate tax for example. After the death of an individual their entire estate is subject to the estate tax. However, all assets above the exemption are taxed at punitively high marginal tax rates up to 55 percent.