Tuesday, October 18, 2011

Capital Gains, Coherence Loses

I love it: The first sentence of the following excerpt says that capital gains are taxed, just like other forms of income. The rest of the excerpt then shows that capital gains are taxed, but not just like other forms of income.

The second sentence says that short-term gains "are taxed at a higher rate" [than other forms of income]. And then it modifies that statement to say that those gains are taxed at the "ordinary" rate, while long-term gains are taxed at a lower rate.

By the end of the excerpt, we are being told that a tax of 0% is still a tax.

From Wikipedia:

In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Short-term capital gains are taxed at a higher rate: the ordinary income tax rate. The tax rate for individuals is lower on "long-term capital gains", which are gains on assets that had been held for over one year before being sold. The tax rate on long-term gains was reduced in 2003 to 15% (for individuals, whose highest tax bracket is 15% or more), or to 5% for individuals in the lowest two income tax brackets (whose highest tax bracket is less than 15%) (See progressive tax). The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, has been extended through 2010 as a result of the Tax Increase Prevention and Reconciliation Act signed into law by President Bush on May 17, 2006, which also reduced the 5% rate to 0%. Toward the end of 2010, President Obama signed a law extending the reduced rate on eligible dividends until the end of 2012.

Wikipedia has something on the history of capital gains tax here. It includes the following, which contrasts nicely with today's view that "over one year" is the long term:

From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively.

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