Saturday, October 02, 2004

The FairTax and Investment

The FairTax proposal not only eliminates all income and payroll taxes in favor if a 23% national retail sales tax, it also eliminates all taxes on capital gains, dividends and interest. What this means is that if you buy a stock at $10 and sell it at $15 you will reap all of the $5 in profit, and may reinvest it without any tax. Only when you choose to spend that $5 of profit (on a new good or service) will you be taxed on that profit.

There are a lot of folks who will look at this and see a big tax break for the rich. Think of it this way though: capital investment is what creates higher paying jobs. If an investor lends a business man $100,000 to buy a bulldozer, he can afford to pay that bulldozer driver a lot more than he can afford to pay someone moving earth for him with a shovel. This is because one man driving a bulldozer can do as much in a day as 10 guys with shovels can in a week. If you tax the interest he pays the investor, then it takes longer for the investor to be able to lend to another business man to buy another bulldozer to create another high paying job. Taxing investment income that is reinvested is purely a means of slowing the creation of higher paying jobs. Now this is NOT to say that the investor shouldn't pay his Fair Share(tm). But the FairTax moves his fair share to the point at which he turns those profits to selfish ends by consuming goods and services with them.

After all, if two investors both make $100,000 dollars in the market and one reinvests it all in creating more highing paying jobs for others, and the other buys a couple of Rolexes and a Mercedes, does it really make sense to take the same $40,000 cut from both of them? Isn't that punishing the virtuous behavior of investing in making a more productive economy in the same way as punishing hedonistic consumption?

The FairTax does not allow the rich (or anyone else) to escape taxation, all it does is tax you for what you consume, not what you contribute. Investment is a contribution to society, and thus the profits from investment are not taxed until they are used for consumption.

2 Comments:

At 7:39 AM, Blogger Mark said...

Capital gains should be taxed exactly like any income. Its just a pathetic myth that it's all about investing in jobs.

Thats what was good about Fairtax -- it doesnt screw labor. It treats all income alike. It doesnt pretend capital gains is something sacred so we should give it a special deal. And we do give capital gains a very special rate.

Even Ronald Reagan had capital gains taxed the same as other income.(except for FICA). We have got far away from that, to where earned income pays up to 300% higher taxes -- on the same income -- as capital gains.

Take two guys, both make 100K. But one guy works every day laying bricks as self employed mason. He can pay up to 40,000 in taxes, FICA and income taxes.

But the same guy, making 100K -- say on Chinese tech stocks -- would pay at most 15K.

The mason provides goods and services here in USA. He takes risk just showing up for work. He takes risks just being in business. But he will pay almost 300% higher taxes. Its pathetic.

Fair tax was attractive BECAUSE it didnt screw the mason. It treated the mason the very same as the capital gains guy.

God bless the capital gains guy. I have no trouble with that. But both should be treated the same.

Fairtax has other flaws-- fatal flaws. But I loved it at first precisely cause it didnt screw those who actually did the work.

I make capital gains, so I know. I invest in Chinese stocks, Canadian mining stocks. IF anything, Im betting AGAINST american jobs.

ALso, you can make capital gains by DESTROYING jobs here. By SELLING OFF your business, by getting people fired. Hedge Funds are famous for destroy jobs -- and making huge profits, that can be tax free, or nearly tax free.

Some capital gains does help create jobs here. The point is -- capital gains isn ust about creating jobs, as the myth would want you to believe. .

I will tell you who makes jobs -- small business. The family business. The self employeed guy who hires a helper. Those are the folks that create real jobs. Those are the people who do the work.

 
At 3:30 PM, Blogger Unknown said...

You're actually giving the FairTax props without meaning to. And you seem to forget that NO ONE'S income is being taxed under the FairTax. This includes capital gains. You may not think it's 'fair' to let some white-collar geek get rich selling stocks while the 'noble' bricklayer stays 'poor', but that's not what you should be focused on. We all have different talents, luck, and skills. There will always be 'poor' people.

The more money that rich stock broker has, the more money they will spend on new shiny stuff, and the more TAXES they will pay, while the bricklayer will be buying more used stuff and paying LESS taxes percentage-wise. Everyone is treated fairly.

It's when you start trying to force things to be more "fair" that you let in the poison that has ended up bloating our (originally 'flat' income tax) to the 70,000 page monstrosity it is today......

 

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