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I mean gains, period--not realized/unrealized--not taxable/untaxed: gains on capital investments.
You can't co-mingle them as they aren't the same thing. A capital gain is by definition realized - the asset has been sold or otherwise disposed of. If the proceeds of the disposition exceed the adjusted basis, there is a capital gain, and it is taxed as a component of income.
If the value of the capital asset has simply increased, but no disposition of the asset has occurred, there is an un-realized gain. This is not a taxable event, and no tax is assessed nor due.
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I'll repeat the piece you snipped, I think it should clarify my meaning:
Because of the nature of capital gains versus earned income. Earned income is compensated labor. Capital gains is the increased value of capital assets (accumulated wealth is invested in capital assets, which can increase in value over time, the gains of which are taxed on liquidation). Capital gains tax is not a seizure of existing capital assets, which is why I say it straddles the line between a wealth tax and an income tax.
I understood it the first time. And it doesn't change the accuracy of what I have written, RE: the IRS considering a capital gain as income, and taxing it.
You can't co-mingle them as they aren't the same thing. A capital gain is by definition realized - the asset has been sold or otherwise disposed of. If the proceeds of the disposition exceed the adjusted basis, there is a capital gain, and it is taxed as a component of income.
If the value of the capital asset has simply increased, but no disposition of the asset has occurred, there is an un-realized gain. This is not a taxable event, and no tax is assessed nor due.
Technically a capital gain is not by definition realized. Capital gains include both unrealized and realized gains. For tax purposes yes, only realized gains count, but even then some realized gains are not taxed unless they are also recognized.
Capital gains can be a wealth tax because it taxes inflation. The value of my asset A can go up in nominal value by means of inflation but not be worth more in reality. However if i dispose of it, i have to pay a tax.
The IRS is focused on implementing the Internal Revenue Code. It is formally silent on matters of political philosophy, thus it would neither agree nor disagree.
Maybe silent but they do act in opinions... look at the Tea Party groups that were discriminated against.
You can't co-mingle them as they aren't the same thing. A capital gain is by definition realized - the asset has been sold or otherwise disposed of. If the proceeds of the disposition exceed the adjusted basis, there is a capital gain, and it is taxed as a component of income.
If the value of the capital asset has simply increased, but no disposition of the asset has occurred, there is an un-realized gain. This is not a taxable event, and no tax is assessed nor due.
I understood it the first time. And it doesn't change the accuracy of what I have written, RE: the IRS considering a capital gain as income, and taxing it.
You miss the forest for the trees, perhaps due to a professional focus on the gains that are taxed. As DKM ably describes, a gain is an increase in value. Capital gains tax in the United States is a system of taxation focused upon those gains, in which gains are taxed when they are both "realized" and "taxable."
One share of GOOG remains one share of GOOG whether the market trades that share at $350 or $900. If you bought a share of GOOG at $350, that share represented the same ownership in the company at that price as it did when it rose to $900. Whether or not you sell at $900, your capital has gained $550 in value with no labor on your part.
The IRS only enters the equation when you sell your share. It does so through a "capital gains tax." The structure of that tax is as you describe due to policy choices by Congress and the IRS.
This back-and-forth sparked from mention of a wealth tax, which you regard as only conceivable as a taking of what? A person's "principal" investment? More likely, I think, you would only see a wealth tax where a nation's taxation authority added up a person's assets, subtracted their liabilities, and taxed the result. I think that view is too narrow. Capital is wealth. Taxing capital (including taxing its gains) differs from taxing earned (labor) income.
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Originally Posted by DKM
Technically a capital gain is not by definition realized. Capital gains include both unrealized and realized gains. For tax purposes yes, only realized gains count, but even then some realized gains are not taxed unless they are also recognized.
Capital gains can be a wealth tax because it taxes inflation. The value of my asset A can go up in nominal value by means of inflation but not be worth more in reality. However if i dispose of it, i have to pay a tax.
Capital gains should be taxed like regular income, and yes I have plenty of capital gains.
That's certainly one policy vector people discuss. A preferential tax rate on realized taxable capital gains compared to regular income exists for a policy reason.
In general, there are 3 main components to increases in our standard of living: (1) Labor (that is, increases in both the quantity of labor and the quality of labor), (2) development of new technology, and (3) increases in capital deployed.
In some instances, Congress has chosen to provide incentives for increasing the quality of labor via education, as this is expected to ultimately lead to an increase in GDP.
In some instances, Congress has chosen to provide incentives for development of new technology -- e.g., the R&D Tax Credit, as this is expected to ultimately lead to an increase in GDP.
In some instances, Congress has chosen to provide incentives for capital formation -- e.g., a preferential tax rate for capital gains, as this is expected to ultimately lead to an increase in GDP.
Eliminating a preferential tax rate on capital gains might have a long-term unintended consequence of being a drag upon future GDP growth. I for one don't think that is a good gamble.
Eliminating a preferential tax rate on capital gains might have a long-term unintended consequence of being a drag upon future GDP growth. I for one don't think that is a good gamble.
No doubt the US Chamber of Commerce would agree with you. Then again, they are shameless lapdogs for the 1%. Others might say that if capital gains were so precious, just plain markets themselves ought to provide all the "incentives" necessary. You believe in markets, right?
It is very odd to wrap my head around the phrase "cap gains can be a wealth tax because it taxes inflation."
Rather, I think of inflation itself as a tax.
Agreed and a regressive one hitting those at the bottom of the economic totem pole hardest.
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