Let's say you want to grow some money for your kid's college, or your own retirement. Let's just say you earned $10,000. If you invest it at an annual rate of 10% for 10 years, you have $25,937.42. Not too bad.
But oops, you earned that money. There are taxes you must pay. Let's say you pay about 40% between Federal, State, and everything else combined. Now your starting money is really $6,000. After 10 years, you now have $15,562.45.
Not bad. That'll really help the kiddies go to college. Except for capital gains tax. The gain is now $9562.45. We must apply a 40% tax again to this increase. This tax is around $3824.98, leaving us with $11737.47.
So. If I earn $10,000 and invest it wisely, I might just get 17% over ten years, or 1.7% APR.
This is what is evil about capital gains taxes. Investors are taking risks with their own money, and if they happen to succeed, they are screwed out of the benefits. Capital Gains taxes are double taxation - the very thing that the Boston Tea Party was all about. It doesn't just hurt Donald Trump either, it's eating people's savings.
Notice how the government doesn't come in and say, "If you lose money, we'll make up the difference". They just swoop in like vultures to punish you if you succeed.
The Capital Gains tax needs to be repealed now, and reparations must be made to all those who have been robbed.
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The capital gains rate is 25% - it was lowered by the Democrats under Clinton. After being raised by the Republicans under Reagan. Also, those nice Democrats gave everyone a $250,000 deduction, which can be combined between spouses. So you only pay the tax after you earn as much as a half-million dollars. When applied to real estate you can also deduct any maintenance or improvement costs incurred on a property, further increasing the upper limit you can earn. Those nice Democrats at work again.
Now, if you REALLY want to complain about a tax, complain about sales tax, which when added-up over a person's lifetime, amounts to more than income tax, capital gains, and almost all other taxes combined. Sales tax is a disinsentive to spend and put money into the economy. But because it comes in such little bites, over and over and over again, no one complains about it too much.
Sales tax is EVIL. About all you can say about it it hits everyone according to their ability to spend.
Actually, the long-term rate is a graduated scale. This is not the case for short-term gains.
From Bankrate.com,
Remember, each of these is the long-term capital gains rate. In most cases, that means you have to hold an asset for more than a year before you sell it. If you cash it in sooner, you'll be taxed at the short-term rate, which is the same as your ordinary income tax level and could be as high as 35 percent on 2004 returns.
But your example says 10 years....
...but who holds a single investment for 10 years?
Not me.
...people with stock in IBM?
agree
but long term cap gains is 15% or less not 40%
Actually it's a graduated scale, not 15% and even if it was 1% it's still taxing money that was already taxed.
They don't share in the risks, just the rewards. That's what makes it inherently unfair, and fundamentally wrong.
If you sell an investment at a loss, you can write that loss off, so the government does in a way share in your risk. They only make money if you do, and will lose tax income if you lose money on the investment.
This doesn't change the fact that you are being double taxed, it only suggests that the government does in a small way share some of the risk.
LOL - if I sell at a loss does the government come in and give me 15% of my loss back? Class? That's right - the answer is "no".
Only the new earnings get taxed. Taxes on the original 6000 has been paid.
So the $9562 is taxed; and I think it's on a scale.
Nevertheless, the money you have after you pay the taxes, will usually not buy as much as it could have ten years earlier. So why bother to save at all? You need to be making 25% per year consistently to come out ahead... So why bother? Better borrow and pay with cheaper future dollars, as they say.
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