Capital Gains Tax

Mr. Way

Economics

3/13/12

What are capital gains?

• When capital you own gains value.

• Capital assets include:– Houses (other than primary residence)– Stocks and bonds– Mineral/Precious metal shares

• Capital gains tax is a tax on the difference in price between when you buy and sell an asset.

Short-Term vs. Long Term

• Capital gains tax can be much higher if you own the capital for less than one year before you sell it.

Income tax rate Short term rate Long term rate

10% 10% 0%

15% 15% 0%

25% 25% 15%

28% 28% 15%

33% 33% 15%

New Tax Rates Starting 2013

Income tax rate Short term rate Long term rate

15% 15% 10%

28% 28% 20%

31% 31% 20%

36% 36% 20%

39.6% 39.6% 20%

• All taxes are going up.• Capital gains going up, too.

Why are long-term capital gains taxed at a lower rate than income?

• Some will tell you that it’s a conspiracy by the super rich to hold on to their wealth.

• Most members of Congress get most of their income through capital gains, so they have an incentive not to tax capital.

• Also, most of their major contributors have tremendous stock holdings.

Why are long-term capital gains taxed at a lower rate than income?

• A less sinister explanation is the one they give to the Public:

• Capital investments are beneficial to all members of society, because investment in companies creates jobs.

• Furthermore, if you raise the tax too high, all the money will move into offshore accounts and we’ll get no taxes at all.

Why are long-term capital gains taxed at a lower rate than income?

• A final explanation is that any capital people own is money they’ve already been taxed on once.

• In order to buy stocks, you need to have money. When you get that money, it’s taxed. Taxing it again when you invest wisely means you’re taxed double.

• Plus, if you buy something else, that’s sales tax, too, so you’re taxed THREE TIMES!

Writing Prompts

• Do you believe it is fair for capital gains to be taxed at a lower rate than other income? Why or why not?

• Presidential hopeful Newt Gingrich has said he intends to eliminate capital gains tax entirely. Would this be good and/or bad for America? Explain.

• If you were president, what would your tax policy be for capital gains taxes?