Capital Gains Whoppers

Richard Rahn is a founder of the ACCF and served as its first executive director. He still serves as a current director today and continues to fight the good fight on important issues including the capital gains tax. In his most recent Washington Times column, he dispels myths and downright whoppers about the capital gains tax.

Apologists for the present capital gains tax, including many members of Congress, claim that because some, but not all, capital gains are taxed at a lower rate (which the president wants to increase) that part of the unfairness is offset. However, the effective rate (inflation-adjusted) is almost always much higher than the statutory rate, and the Tax Foundation found that at times the effective rate has been as high as 300 percent. 

Many studies, by both private and government researchers, have shown that often most of the tax is paid merely on inflationary gains, not real gains.

The apologists also ignore the fact that most capital gains are taxed multiple times. For instance, investors in corporate stock pay a tax on their investment funds when they earn the money; then the corporation pays federal, state and local taxes before investors are taxed once again on the same stream of earnings. This multiple taxation of capital results in lower productivity and job growth. 


Finally, the apologists claim the tax is paid only by the rich, which is another whopper. Anyone with a farm, small business or corporate stock - which includes most Americans - almost always pays capital gains taxes at some point. A person who has spent 30 years building a small business and sells it for $300,000 in order to retire is considered "rich" that year by the political left and the IRS...

Congress could easily stop the scam by permitting an inflation adjustment to the basis for a capital gain and allowing a full write-off of losses in the year in which they occur. Now is an ideal time to make these changes, given that capital-gains tax receipts will be very low because of the drop in the stock and real estate markets. If imaginary income were properly removed, these receipts would be close to zero.

G-20 Notes

As I drove home last night, I was listening to President Obama's post G-20 news conference. Two key points made during his Q&A struck me...

I think that there's always been a spectrum of opinion about how unfettered the free market is. And along that spectrum, I think there have been some who believe in very fierce regulation and are very suspicious of globalization, and there are others who think that it's always -- that the market is always king. And I think what we've learned here, but if anybody had been studying history they would have understood earlier, is that the market is the most effective mechanism for creating wealth and distributing resources to produce goods and services that history has ever known...

And this...

I strongly believe in a free-market system, and as I -- as I think people understand in America, at least, people don't resent the rich; they want to be rich. And that's good. But we want to make sure that there's mechanisms in place that holds people accountable and produces results...