On Taxing Capital Gains

Here's a slick ad from the RNC. The point is a sound one: Raising the capital gains tax would hurt the middle-class, in particular, those who own stock or run a business.



I shot some basic questions about the capital gains tax to an economics professor from my undergrad days. He neatly limns some of the troubles associated with Obama's tax scheme.

A capital gains tax is a tax that is put on the sale of an asset, as opposed to regular income. So, if I sell a house and make a profit, I have to pay a capital gains tax. The reason that this will hurt the middle class is two fold:

a. Small business entrepreneurs usually raise capital by selling things they own, like houses and stock. As one increases the capital gains tax, they are discouraged from doing so, so the capital remains frozen.

b. Frequently, middle class people sell stock to pay for catastrophic things such as serious illnesses, or college tuition. They have no choice about these things, so they are directly penalized.

Some people use stocks to get an income from, but this is not capital gains; they buy annuities from which they get a regular income and pay regular income taxes.

Notice Obama never mentions spending cuts, nor in the clips given, mentions why we need a tax increase. This is, in my opinion, a punish the rich scheme to get votes form the ignorant who are envious of those who are successful.