Why Are We Assuming That Only Rich People Pay The Capital Gains Tax?

tax-the-rich

“What’s very clear is that you do have to raise rates,” said outgoing Senator Kent Conrad about the nation’s deficit and debt problems in a Wasington Post interview. “You certainly have to [raise taxes] on capital gains and dividends. From 15 percent to 35 percent — that’s a 20 point difference. There’s no way to get the revenue necessary without significant changes on capital gains and dividends, to have any kind of fair tax system,” said Conrad.

“For the very wealthy, it’s an incredible advantage they have on capital gains and dividends.”

That’s an interesting comment. Why are we assuming that it’s only the “very wealthy” who have income from capital gains an dividends?

According to Gallup, some 54% of Americans are invested in the stock market, and that’s actually low in comparison to historical trends. In 2007, it was 65% and in 2002 it was 67%. And remember, that’s just counting people who are invested in publicly-traded companies. The percentage is much higher, I’m sure, if we start counting people who invest in privately-held business ventures.

And we should want Americans investing. Investments are what provide the capital that, in turn, leads to more business development and more jobs. Treating the capital gains tax as though it were a tax only on rich Wall Street types is ludicrous. A lot of Americans are invested in the stock market, from retirement accounts to venture capitalists, and raising the capital gains tax on investment and dividend income hits all of them not just the “very wealthy” as politicians like Conrad would have us believe.

Not only would a dramatic increase in the capital gains tax, as Conrad and other Democrats are touting, hurt more than just “very wealthy” it would hurt American investment in general.

If we tax investment income at higher rates we’re going to get fewer investments.

Don’t we want more investments in our economy right now?

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • igx

    This is very similar to the effects of the corporate tax. It sounds like you are taxing “the man”. The reality is, since it can only come out of salaries, wages, dividends, or retained earnings (capital gains or future investment), it’s quite regressive. Terrible.

    The corporate tax should be zero. The government would end up getting they same amount of money anyway. It’s just a drag on the economy.

  • dakotacyr

    Just because millions of americans are invested in the stock market doesn’t have them paying the capital gains tax. You should actually try to know what you are talking about.

    According to the Tax Policy Center:

    “Fewer than one in seven individual income taxpayers reported taxable capital gains in 2006. Over half of taxpayers with gains had incomes below $75,000, but most capital gains were reported by very high income taxpayers. The 3 percent of returns with AGI over $200,000 reported 31 percent of AGI and 83 percent of capital gains; the 0.3 percent with AGI over $1,000,000 reported 15 percent of AGI and 61 percent of capital gains. Many more Americans accrue capital gains on corporate shares they hold within tax-deferred employer-sponsored retirement plans, but they do not pay capital gains tax on these gains.”

    • Geoff

      Wow… You r wrong buddy. Tax deferred means u pay at a later date, it does not mean you don’t pay at all. You are then taxed the effective rate upon withdrawal. If you invest $5k of personal dollars in stocks and 10 years later that investment is worth $9k, you will pay capitol gains on $4k. Almost everyone will pay Capitol gains sometime in their life. Not just the wealthy..

      Where do u get your koolaid?

    • http://sayanythingblog.com Rob

      So, because they’re tax-deferred, we’re assuming they’ll never pay the tax?

      What happens when a family hits an emergency and they have to pull money out of those tax deferred funds? They get hit with a capital gains tax that you Democrats want to more than double.

      • Dakotacyr

        What a bunch of hooey! I proved you wrong and you make something else up.

        • geoff

          Dak. You are thinking tax exempt rather than tax deferred. Can you clearly define the word “deferred”? It means you put it off to a later date, not exempt. Again. Where do you get your koolaid?

          • WOOF

            Ask Mitt.
            The beauty part of deferral of taxes.
            John Maynard Keynes :
            “In the long run we are all dead.”

          • Geoff

            How do u know mitt deferred taxes? Have you went through his tax returns? Interest, dividends, earned income are all appropriated differently. Mitt don’t seem like one who would use a 401k. Most wealthy individuals would never invest in a fund where they would be penalized 10% if they had to get their money out of the market.

            Just saying! I guess u r the tax expert who prepared Romneys taxes.

          • WOOF

            Here’s how I know Geoff.Mitt makes money on charity.,” Romney used the tax-exempt status of a
            charity — the Mormon Church, according to a 2007 filing — to
            defer taxes for more than 15 years.”“The main benefit from a charitable remainder trust is the
            renting from your favorite charity of its exemption from
            taxation,” … giving a gift or
            getting a charitable deduction “is just a throwaway,” Romney got 8% on his money sold assets with no tax liability the Mormon chuch gets zero. All legal. http://www.bloomberg.com/news/2012-10-29/romney-avoids-taxes-via-loophole-cutting-mormon-donations.html

        • http://sayanythingblog.com Rob

          I’m not making anything up. I pointed out that it’s not just the “super rich” who pays capital gains, and I’m right.

          Your data source says that “only” 1 in 7 income tax payers reported taxable gains. There were 91 million Americans who filed tax returns in 2006, meaning that of those roughly 13 million reported gains.

          Of that total, half (roughly 7.5 million) had overall incomes less than $75,000/year meaning they’re hardly “rich.”

          What you’re talking about is doubling the capital gains tax on some 7.5 million Americans who make less than $75,000/year.

          But Conrad would have us beleive we’re only talking about the “super rich.”

          “Hooey,” indeed.

  • SigFan

    Anyone that has a 401K or IRA is subject to capital gains – and the last time I looked a huge percentage of the middle-class fall into that category. But Obama gets away with saying that he only wants to raise taxes on “the rich”. And as someone who falls over the $250K a year line I can tell you unequivocally that I am far from rich. Comfortable – yes. Rich – no.

    • DWHoover

      I personally would like to thank the Democratic party for making me realize that I am rich. Since I pay capital gains taxes, I must be rich. Same with in 2001. The Democrats said that the Bush Tax Cuts would only benefit the rich. Guess what? I got a check, so I must be rich! Thanks Democrats!

    • yy4u2
      • SigFan

        Heard about this on the radio today. IMO if the government attempts to seize the private accounts of citizens that will touch off a firestorm unlike anything seen in this country ever before – and I include both the Revolution and the Civil War in that comparison. Hopefully even the useful idiots on the left would not be stupid enough to try this.

    • The Revealer

      “Anyone that has a 401K or IRA is subject to capital gains – and the last
      time I looked a huge percentage of the middle-class fall into that
      category.”

      You haven’t looked at the subject at all.
      Stop spreading misinformation. The truth:
      Traditional IRAs are typically funded with pretax dollars. Distributions out of the account after age 59½ are taxed as ordinary income.
      You don’t have to calculate investment gains. If you have nondeductible
      contributions in your traditional IRA, you can use IRS Form 8606 to
      determine the taxable portion of a distribution.

      Read more: http://www.bankrate.com/finance/retirement/how-are-ira-distributions-taxed.aspx#ixzz2Chwfht3v

      • RecklessProcess

        Revealer; sure people have 401ks. People also have investment accounts where they can buy stocks, bonds, and funds. You are promoting the false idea that non-rich people will not invest to try to make money for retirement. And you want to tax me at immense rates where you take 45% of anything I earn in my tiny investment account. You and the totalitarian democrats don’t want me to have any chance to do well or have a better life than my parents. You greedy goons take half of everything in order to teach prostitutes in the Ukraine to use condoms. We have a spending problem not a revenue problem. We spend 1.5 trillion we do not have every single year under these totalitarian democrats.

        • LibertyFargo

          ” We have a spending problem not a revenue problem.”

          Yup! +1

  • UncleBuck

    Or another issue is the rise in the estate tax. The limit will drop from 5 million to 1 million dollars and the rate will go up to 39 percent. The worry facing our family is our farmstead and the surrounding cropland is how much we would lose in the inheritance. We are not rich by means but I would have to pay several hundred thousand dollars to Uncle Sam just to keep land that has been in our family for generations.

    • Harold

      Obama wants everything you own, thats what socialism/communism is. Were all about to loose what our families have worked for in many case’s for over 100 years. This man in the White House is the biggest con job ever perpetuated on the american people. Anyone with assets he wants the govt to own those assets.

  • Harold

    When all is said and done about which americans pay more in tax’s we all will with this president and administration. Has anyone ever took the time to look up all the hidden tax’s you pay everyday to do business in this country. If you haven’t I suggest you do especially if your considered to be poor, because we all pay to keep the president and his cohorts happy.

    • dakotacyr

      Poor Harold, still crying crocodile tears over President Obama’s re-election. get over it!

      • Gern Blanston

        Compelling couter to his post….

  • HG

    “Don’t we want more investments in our economy right now?”

    We all do. Only dems want to “invest” everyone’s money for them. Obama’s green energy portfolio has performed almost as poorly as Madoff’s, but that won’t stop him from doubling down. Meanwhile, Fracking has moved us closer to energy independence without any help from Obama, actually, in spite of Obama.

    Funny bunch of douche’s the dems are. The admit with every penny gov’t “invests” in the economy that the more money business has available, the better chance of economic growth. But God forbid that money stay in the pockets of business without it first coming to Washington. These same dems demonize tax cuts as no impetus to economic activity. Go figure.

    • The one you should trust.

      I want to “invest” your your money for you.
      I have foolproof info in this green company…..

  • WOOF

    Higher taxes on corporate income encourages investment.
    The choice, pay the gov’t or expand business?

    • guest

      Higher taxes on corporations results in the corporations passing the higher taxes down onto idiots like you.

      • chris

        That’s not what history has shown. The corporate tax rate has gotten smaller and smaller since about 1950, but things have gotten more and more expensive. The rich simply keep their extra money to buy another yacht and that summer home in the Bahamas.

        • HG

          You conveniently ignore the colossal increase in regulations and fees over that same period of time.

          • chris

            You might be right about regulations driving up costs. However not all regulations are the same, and some clearly benefit the consumer while others benefit small business. We would have to look at each individual regulation to see how they affect the economy.

            Regardless, the data still shows that we can jack up the tax rate on the rich without much fear that it’ll hurt the overall economy.

          • HG

            I doubt that. Obama alone has added innumerable regulations. Fees have gone up as well. Licenses, permits, etc. have all seen increases. All these MUST be passed on to the consumer if there will be a profit margin worth all the trouble. The consumer is the one paying for all these tax increases.

          • chris

            Obama has not added innumerable regulations, that’s a lie. He has added a few hundred regulations, but slightly fewer than the previous two republican presidents. In fact the record breaker for regulatory spending is George W Bush.

            Like I insinuated, over-regulation is bad, but regulations that hit the right note can keep corruption at bay and protect consumers, such as the Dodd-Frank Act.

        • http://sayanythingblog.com Rob

          That’s not what history has shown. The corporate tax rate has gotten smaller and smaller since about 1950, but things have gotten more and more expensive.

          That’s true, but we also have to remember that correlation is not necessarily causation. There are more factors at work there than tax policy. Monetary policy, for one thing, has created a huge amount of inflation during that same time period, driving up prices and diminishing purchasing power.

          And, as HG notes, there has also been a significant increase in regulations and other red tape during that time.

    • HG

      You really have no idea how the economy works, do you.

      • WOOF

        HG, explain away the booming US economy from 1950 onward. All those years of higher taxation corporate and personal. Then tell us how the economy works.

  • Guest

    It’s a question of degree…proportionally the rich put much much more of their money in investment because they have extra money; the typical middle class person puts their money into daily consumption (rent, food, clothing, utilities etc).

    Why would you favor supply over demand, I thought the Republican party was supposed to be about free markets and not giving preference to one segment of the population over the other?

    • http://sayanythingblog.com Rob

      Well, this Republican is certainly for flatter taxation. But you’re not going to get me to go along with making taxation on wage income and investment income equal at the expanse of dramatically increasing taxes on investment.

      How about we cut wage income taxes down to investment income levels, and then cut spending accordingly?

      • Guest

        Taxes collection as a percentage of GDP is the lowest it has been since 1950 and spending is at the highest it has been since since World War II.

        Why not reduce and cap deductions at a certain amount to make the system more economically efficient, slightly reduce to a level where you are collecting more revenue (income tax is 1 trillion in collection and 1.1 trillion in deductions), raise capital gains to a similar rate as wage income when factoring for inflation, and reform our big spending programs to make them more soluble.

        Your plan would require us to cut back spending to levels they were at before all of the programs that began with the new deal. This may sound good but is totally unrealistic. It is where you set your priorities but I don’t think Americans would support a revenue plan that would force us to end social security, Medicare, Medicaid, military, and welfare in any way that we see it today. Beyond that in a practical sense it would cause social upheaval and economic insanity unless it was phased in over a very long period of time. And even if it was done over a long period of time privatization would cause massive short term deficits in a time that we cannot afford it. So…..why not just be practical and have a balanced solution similar to Simpson Bowles to get us back on the path to financial sanity? After all although it has become a dirty word in politics, is compromise not a necessary element for democracy to function?

  • Wayne

    Of course capital gains taxes will affect more than just the ‘rich’, who ever that is. And the Democrats know it too. But saying this will only affect the ‘rich’ is how they sell their crap to the sheep that call themselves democrat voters. Democrats do this kind of stuff all the time.

  • http://randysroundtable.blogspot.com/ Randy G

    Selling a home and make a profit? Reinvest or pay a 35% tax. Screw you Conrad. There will never be enough tax revenue to satisfy the liberals spending policies.

  • matthew_bosch

    Tax what you want less of, subsidize what you want more of.

  • http://www.facebook.com/people/Bruce-Mccollom/100003136041420 Bruce Mccollom

    To make matters worse, much taxable “capital gain” is not “real” (it does not exceed inflation). Also much taxable capital gain has already been taxed at the corporate level and is taxed again at the personal level. It would be fair, and fine with me, to tax capital gains that are real (ie those in excess of inflation) as ordinary income, provided they were only taxed once (ie eliminate corporate income taxes in the US and adopt a teritorial tax system).

    • http://sayanythingblog.com Rob

      To make matters worse, much taxable “capital gain” is not “real” (it does not exceed inflation).

      That’s a really good point.

  • RecklessProcess

    I make far less than 80k a year. But a few years ago I made a lucky investment and turned 4000 into 80,000. I paid 20,000 to the federal government and another 5000 to my state. The rate that year was 15% on capital gains. But it look to me that I paid 31%. If they raise the rate to 30% stock holders, like me, will pay 45% 0f earnings. I am no where near rich. But I already pay half my income to the government. HALF!

  • http://thepoliticalinformer.com/ John-Pierre Maeli

    And might I add that it is the rich who invest in new businesses and create most of the capital and products. Without them, there would be no iPhone and such.

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