So, after years of self-imposed austerity, Walter, the Wal-Mart Store Manager manages to sock away, in passbook savings, a tidy $75,000; the remains (after contributing to govt employment and a few bailouts) of $100,000+ of unspent income… It’s March 2009 and Walt’s thinking, at Dow 6,500, the stock market just might sport an opportunity or two… So he buys the Mt. Everest Smallcap Fund (I made that name up, I think… If there is such a titled fund, this is not my endorsement) and lo and behold he was right (lucky); his original $75,000 investment sits, a mere 3 years later, at $130k and change…
Meanwhile, residential real estate continues to languish… Walt, now a self-proclaimed investment swami, is thinking property’s where he’ll find his next 80% quick hit… So he begins his “research”, looking to put down the whole $116k… Now wait a sec, you thought he had $130k? Nope, fraid not… You forgot about the 15% capital gains tax, plus the bloke lives in California (ugh)… You know; all those govt jobs and future bailouts take money…
So let’s get this straight… Walt earns $100k+, which is taxed as ordinary income… Then, rather than spending the remaining $75,000 on immediate stuff, tax -free (like the rest of the 99%ers), he invests it in growing, job-generating companies, then gets penalized to the tune of $thousands (for actually doing something productive with it)…
Folks, the cap gains rate does not even begin to, or even remotely, prove that the code favors the rich, as this New York Times editorial would have you believe… I’d say, unequivocally, the opposite… The tax code clearly rewards spending, for again, our man Wally could’ve simply blown the $75k entirely tax free, affording him no opportunity to ever become rich…
In the end, alas, the code favors 0% of the population… For, by taxing investment, there’s less to invest, meaning less capital in the private sector, meaning less job growth and therefore less income taxed at ordinary income rates… The only truly “fair” cap gain rate, if “fairness” is what you’re after, would be 0%…