Capital Gains Tax Rates – Individuals vs. Insiders

“What is the proper captial gains tax rate?” is in the news lately.  The correct answer for all tax questions is “All taxation is theft!”  The capital gains tax has other interesting points.

Applied to individuals and non-insiders, the capital gains tax is obviously unfair.  I’m taxed once when I work and earn money.  I’m taxed again when my savings grow.

Even worse, most capital “gains” only exist due to inflation.  If I buy gold for $1000/oz and sell for $2000/oz, I owe tax on a “gain” of $1000.  It’s more accurate to say that there was 100% inflation, and I’m paying tax on the inflation-caused “gain”.

In the stock market, suppose my return is 20% while true inflation is 30%.  I owe tax on the “gain” of 20%, while my real return isn’t keeping pace with true inflation.

Applied to insiders, the capital gains tax is a great tax dodge.  If you earn ordinary income, you’re taxed at a rate of 50%.  (28% Federal, 15% Social Security+Medicare, and state+city taxes).  For insiders, most of their income is capital gains.

The CEO of a large corporation is paid mostly via stock and option grants.  When he sells, he’s taxed at the capital gains rate and not the ordinary income tax rate.  The CEO also can hold onto the shares, not owing tax until he sells.  Even worse, the CEO can use trusts and tricks to dodge taxes.

The average worker only gets shares of stock if he buys them.  The CEO gets the corporation to give him free shares as part of his compensation.  That isn’t a valid comparison, but the capital gains tax law treats both of those the same.

The average worker pays high income taxes, and then is taxed again if he has savings.  For insiders, most of their income is capital gains, leading to a much lower tax rate than ordinary income.

Via captial gains taxes, non-insiders pay tax on their labor, and tax again on their savings.  Most capital “gains” only exist due to inflation.  Insiders use captial gains and other loopholes to nearly completely dodge taxes.  All taxation is theft.  Captial gains taxes are one way that the State favors insiders over everyone else.

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