Does it make any sense to tax capital gains?
Bob, John, and Mary each scrimp and save $10,000 (after paying taxes) from their jobs at Red Widgets. Bob starts up a company called Blue Widgets with his $10,000 and Mary uses her $10,000 to start Green Widgets, John starts up Yellow Widgets. Over the next few years, the widget industry grows at about a 10% pace. Bob, John and Mary's companies are each worth $100,000. Bob figures out that he knows how to make a better green widget and increase Green Widgets income by another 3% and Mary figures she could increase Blue Widgets by 3%. John is happy plodding along with Yellow Widgets. So Bob sells Blue Widgets to Mary for $100,000 and Mary sells Green Widgets to Bob for $100,000. Both Bob and Mary have $90,000 in capital gains. Both look forward to being able to increase their Widget company's growth by another another 3 percent to bring annual growth to 13%.
Oh, oh, in comes Uncle Bill, the tax man. He looks at Mary and Bob's capital gains and says, "sorry guys, you both owe me 28% of your capital gains". So each has to take out a huge loan at 8% interest, which would be 5% or less if government could make ends meet and stop inflating money, but that is another story.. To make up for the lost income by this higher overhead, they lay off several workers. In typical big government flatlander liberal think, Uncle Bill uses the taxes that he forced from Mary and Bob to pay for unemployment and welfare for the workers that Bill forced Mary and Bob to lay off. Isn't it nice how this Uncle Bill cares for working people?
Sure enough, both Bob and Mary were right, their innovations are eventually able to increase the growth of their widget companies. Only problem is it will take them about a decade to catch up and pass John's less innovative widget. Almost all of the increased income from their widget innovations goes to pay off the loan they had to take out to pay off the capital gains taxes. They eventually are able to hire back all the workers they laid off and the equipment they had to sell to pay Bill's taxes so Bill could pay for welfare for the jobs Bill's capital gains tax killed. Like most dynamic capitalistic economies, it eventually recovers from the gouge that government created to limp along at a lower growth rate for average wages.
Question : Wouldn't it be better if Bob and Mary didn't have to lay all those people off in the first place? Wouldn't Bubba and his worker buddies been better off without Bill's capital gains double tax on the sale of their widget company to a new and innovative owner? Wouldn't our economy grow much faster without Uncle Bill's compassion to help those whose misery his high taxes help create?
Of course there is another way to look at this. Suppose that the Fanatics, a professional basketball team, sign a young player, Kawn Shemp, right out of high school for $300,000. After several years of developing Kawn to the number one capital asset to the team, Kawn wishes to be traded to another team that he thinks can better use his talents. Kawn's capital value to the Fanatics is over 30 million dollars. Is it right for Uncle Bill to hold Kawn (or any group of workers) hostage until of the Fanatics agree to pay 10 million in capital gains from selling (or trading) Kawn? If one believes that capital gains should be taxed, your answer should be an unqualified yes. Conversely, if you believe that it is wrong for government to hold one or more workers who wish to be as productive as possible hostage till their owners pay huge capital gains taxes for the potential value of their labors, then your answer should be an unqualified "NO TAX ON CAPITAL GAINS".
Another reality to contemplate is that after Kawn is traded to another team, his productivity, income and value will likely increase, as will the taxes collected on his increased income. In other words, with no capital gains taxation, the market is freer to develop to offer higher quality goods and services, be more productive as well as pay more taxes related to that increase in value of their product and services.
In summary, should capital gains be taxed? You can of course make up your own mind on this issue, but it is kind of a no brainer, IMO.
The real problem is how to get the PRESSident and our educators to properly promote the reality of this message so that the average Bubba can understand the issue. Like most flatlanders, the PRESS thrives on promoting controversy and misery for their own politicking benefit, rather than solutions. To achieve this end, it is necessary for them to present the perspective from the class warfare perspective, and to whatever possible to deny that any other perspective has any reality. Of course to make any headway in countering this process conservatives must learn to present alternate perspectives from points of view that those who don't understand basic economics can understand. So far, it seems conservatives have been largely unable to achieve this goal either from their own ineptness or by PRESSidential design.