Newspaper logo  
 
 
Local Gov’t Stories, Events

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education

02.26 DeVos to Conservative Conference: I Will Replace the Bush-Obama Failed Ideas with My Own Failed Ideas

Letters

Ref. : Letters to the editor

Health Care & Environment

02.27 TRUMPCARE VS. OBAMACARE

02.27 Only China Can Save the Planet [Republicans cede renewable energy dominance to China, as if only fossil energy has worth. Could they be more stupid?]

02.27 With Obamacare in jeopardy, California considers going it alone with 'single-payer' system [with population larger than Canada, California could achieve better single-payer efficiencies than Canada's, with even greater efficiency when more states join in a common insurance market]

02.26 Windfarms aren’t the real reason energy bills are rising. Blame the free market

02.26 Food aid from warehouse to plate: fighting South Sudan’s famine – in pictures

02.26 Scott Pruitt vows to slash climate and water pollution regulations at CPAC [another immoral idiot speaks]

02.25 Revealed: thousands of children at London schools breathe toxic air [you can't see the most dangerous pollution, the particles are too small which makes them dangerous]

02.24 OMG measurements of Greenland give us a glimpse of future sea rise

02.24 Dutch minister calls on UK to join safe abortion fund after Trump ban

02.23 BREAKING: Exxon to Leave Up to 3.6 Billion Barrels of Tar Sands/Oil Sands in the Ground [Yay!]

02.23 Lancet Study on Life Expectancy by 2030 Confirms Poor US Performance

02.23 Climate scientists face harassment, threats and fears of 'McCarthyist attacks' [sociopathic behavior...]

02.23 The Case for a Fracking Ban

News Media Matters

02.26 Spurned Reporters should dump Trump Briefings, turn to Investigative Journalism

02.26 Revealed: how US billionaire helped to back Brexit [and Trump] [at what point is the label "traitor" apropriate?]

02.25 Donald Trump press ban: Guardian, BBC and CNN denied access to briefing

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

02.26 The Immigration Facts Donald Trump Doesn’t Like

02.26 'Incredibly Disappointing': Democrats Choose Tom Perez to Head Party [not changing is not the answer; can a party taking large campaign donations from healthcare companies ever support price-controlled single-payer?]

02.26 Trump national security adviser wants to avoid term 'radical Islamic terrorism', sources say [McMaster seems an unusually sane member of Trump's administration]

02.25 Wanted: Three Principled Republicans to Save America From Trump

02.25 REPUBLICANS ACCUSE VOTERS OF USING TOWN HALLS TO EXPRESS THEMSELVES

02.25 Resistance Recess Puts Congress on Notice for Supporting Trump’s Agenda

02.25 Steve Bannon: Trump is 'maniacally focused' on executing promises [videos; will increasingly unregulated and immoral capitalism save us?]

02.25 Donald Trump vows to 'get the bad people out' of US – as it happened

Justice Matters

02.26 The story of the week is Trump, Russia and the FBI. The rest is a distraction

02.26 Hate Crime Is Feared as 2 Indian Engineers Are Shot in Kansas [two foreigners walk into a red state bar...]

02.25 White House confirms conversation with FBI about Trump and Russia

High Crimes?
Economics, Crony Capitalism

02.25 Just as neoliberalism is finally on its knees, so too is the left

02.24 Michael Hudson: Why Failing to Solve Personal Debt and Polarization Will Usher in a New Dark Age

International

02.27 How Russia Is Using Oil Deals To Secure Its Influence In The Middle East [countries should get off of fossil fuels so the world can breathe]

02.27 Infographic: Here’s How the Global GDP Is Divvied Up

02.27 Twilight of the Technocrats? [caring for people and morals have to become prime factors!]

02.27 THE LONG HISTORY OF DEPORTATION SCARE TACTICS AT THE U.S.-MEXICO BORDER [why can't we have altruistic policy to help people avoid becoming refugees? perhaps it is bad governments that should be helped...or punished. is U.S. drug policy the root problem?]

02.26 HOW PETER THIEL’S PALANTIR HELPED THE NSA SPY ON THE WHOLE WORLD [technology East Germany's STASI would have loved!]

02.25 CHINA’S NORTH KOREA PROBLEM

02.25 TRUMP, PUTIN, AND THE NEW COLD WAR

02.25 Marine Le Pen refuses to be questioned by French police

02.24 A Global Counter-Trump Movement Is Taking Shape

02.24 UN: $4.4bn needed to prevent 'catastrophe' of famine

02.24 Kim Jong-nam killed by VX nerve agent, say Malaysian police

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
Google
This site Web
  The Spurious, Curious Case for Low Taxes on Capital Gains
Newspaper logo

FISCAL ANALYSIS:

The Spurious, Curious Case for Low Taxes on Capital Gains

by GERALD E. SCORSE
It’s nonsense to claim that buyers of stocks deserve a tax break when they sell their shares at a profit. A tax break? For making money in the market?
These are heady times for backers of low taxes on capital gains. Presidents Clinton and Bush both cut the capital gains rate, bringing the current levy on long-term gains down to 15%. That’s the lowest in more than 70 years, “gloriously low” in the words of economist Ben Stein, and it means that profits on stock market transactions are now taxed at a lower rate than the wages of average Americans.

There’s no good reason for this preferential treatment, and powerful reasons to end it. Leading the list is the simple fact that stock market “investors” are almost never real investors in the first place.

The argument for a low rate on capital gains is invariable (and in recent years, invariably effective): it holds that investments in the stock market grow jobs, grow businesses, and provide vital fuel for the United States economy. Partly as inducement and partly in gratitude, the argument goes, it behooves government to reward investors with low capital gains taxes.

A potent blend of myth, propaganda and misimpressions. Let’s look instead at some truths.

It’s routine on Wall Street these days for trading volume to run in the billions of shares. On any given day, only a tiny fraction of those billions has any valid claim to growing jobs or businesses or the economy. On many days not a single share qualifies as a bona fide investment.

Almost all the time, all that’s happening is money changing hands as shares move from sellers to buyers. Not a cent goes to the companies whose shares are traded. No jobs are created (except in the financial community, which is not the point here). No businesses are expanded. Investments are really being made not in the economy but in personal portfolios.

The only genuine stock market "investments" are those in initial public offerings (IPOs) and secondary offerings. In those cases alone does the money move on to do the work it’s purported to do.
The only genuine stock market investments are those in initial public offerings (IPOs) and secondary offerings. In those cases alone does the money move on to do the work it’s purported to do. All the rest is aftermarket noise as the players place their bets at the tables down on Wall Street.

Securities markets clearly play an energizing role in the American economy. All the same it’s nonsense to claim that buyers of stocks deserve a tax break when they sell their shares at a profit. A tax break? For making money in the market?

Now for more reasons why this is poor policy.

Income is income and should be taxed at the same rates no matter where it comes from; what’s good for the goose is good for the gander.
There’s a fairness issue that flows from taxing one kind of income differently from another. Income is income and should be taxed at the same rates no matter where it comes from; what’s good for the goose is good for the gander.

There’s the issue of income inequality, which has soared in America lately. According to the David Cay Johnston book Perfectly Legal, the top one percent of taxpayers controls about half the nation’s financial assets. Two-thirds of the income of the 400 highest-income Americans comes from long-term capital gains. Undeniably, the benefits of tax breaks for capital gains flow overwhelmingly to the already-wealthy; undeniably, preferential rates on capital gains exacerbate income inequality.

Finally there’s a tax equity issue which our forebears even considered a moral issue. In 1924 Congress first differentiated between earned income (wages and salaries) and unearned income (e.g., capital gains and dividends), and taxed the unearned income at higher rates. It was deemed the right thing to do; old-timers would have shuddered at the notion of taxing wages at higher rates than capital gains.

Those were the days. Now it’s 2007.

Under the trumped-up cover of spurring economic growth, average American workers have to pay higher taxes on their wages than if they made the same amount of money in the stock market.
Under the trumped-up cover of spurring economic growth, average American workers have to pay higher taxes on their wages than if they made the same amount of money in the stock market. They’re getting stiffed by carrying a heavier relative tax burden, getting fewer services or some of both.

The latest capital gains tax cut is set to expire in 2010, and the new Democratic Congress has indicated that it has no plans to visit the issue until after the 2008 elections. This gives them plenty of time to look beyond the propaganda, and to consider taxing capital gains at least as much as earned income. A political pipedream? It was the rule not long ago: from 1988 to 1992, long-term realized gains were essentially taxed at the same rate as other income.

Then the K Street apostles went forth and preached, and the spurious, curious case became gospel.


Copyright 2007 Gerald E. Scorse. The author holds an M.B.A. from Baruch College. His House testimony on capital gains tax reporting helped lead to a reform bill now before Congress.

SOURCES:
  • Johnston, David Cay. Perfectly Legal (New York: The Penguin Group, 2003), pp. 16-17, p. 310
  • Stein, Ben. “It’s a Great Country, Especially if You’re Rich,” Sunday Business, The New York Times, February 11, 2007
  • Weisman, Steven. The Great Tax Wars (New York: Simon and Schuster, 2002), p. 351

Copyright © 2007 The Baltimore Chronicle. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

This story was published on March 16, 2007.
 

Public Service Ads: