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Originally Posted by wehotex
lol, yes, even at today's piddly low interest rates, I'm still taxed on it.
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so then you earn more than $400 per year in interest on your savings? if so then why are you not also investing heavily in the stock market and other areas where you would get taxed as a capital gains, rather than as income?
capital gains taxes are put on a number of items, the house you bought, stocks, bonds, etc. these are taxed at a lower rate to encourage investment, and to encourage turn over in these areas. for instance, lets say you invest in IBM stock, and lets say the stock went up 40% in 18 months. if you just let the stock languish, you might end up losing money if the market tanks, and the stock then drops below what you initially paid for the stock, where as lets say you cashed out at its peak, you then have made money. that money is then taxed at 15% to encourage you to reinvest the money somewhere else.
this is also useful if you bought a house, invested some money into it to make it nice, and then sold the house for a profit. this would give you more money to go out and buy another house to do the same thing. if you were taxed at regular income rates, you would likely not invest the money, but rather let it languish in a savings account where is does little work.
taxing investment income at lower rates encourages money to flow through the system, and that flow actually creates more tax revenue in the long run.