Your loss does not take away from national income. My winnings do not add to the economists calculation of national income. Our bet is not part of the countrys GDP. Suppose you and I bet $100 on a sporting event and I win. The tax treatment of capital gains is similar to the tax treatment of gambling. This gives them the opportunity to time their losses and gains so that they offset each other. Thats because investors usually have a great deal of discretion about when they buy or sell assets. If capital losses were fully deductible, most tax specialists believe the government would collect very little net revenue. The governments position is: Heads they win, tails you lose. But as all investors know, deductions for losses (net of gains) are limited to $3,000. If people are taxed on their gains, they should be able to deduct their losses. Sound economics and common sense indicate that any discussion of capital losses should mirror that of capital gains. And they shouldnt be.Ĭapital losses are different, too. Nor are they included in the GDP of any country. The national income and product accounts for the United States do not include line items called capital gains. Capital gains are not part of our gross domestic product. But these changes in expectations are not changes in actual production or consumption. The selling price of a building rises and falls based on changes in expected future rents. Share prices rise and fall (generating gains and losses) based on changes in expected future profits. Capital-gains taxation is an exception to this rule. Law students earning potential at graduation is not. The same principle applies to human capital. Taxes are paid on a buildings actual rental income, not on its expected future rents. Corporations pay taxes on their actual profits, not what their profits are likely to be in future years. Like every other country in the world, the United States mainly taxes income as it is realized. Meanwhile, a good case can be made for abolishing capital gains taxes entirely.Ĭapital gains income is different. These high tax rates will probably generate less revenue for government than what we have today and in the process do a great deal of economic harm. According to the Tax Foundation, in some states the tax burden will be much higher: 56.7% in California, 54.3% in New York and 54.2% in New Jersey. If you add on the 3.8% net investment income tax plus the average state tax, the top rate will climb to 48.4%. President Joe Bidens American Family Plan seeks to increase the top federal tax rate on long-term capital gains from todays 23.8% to 39.6%.
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