OohPooPahDoo
Gold Member
The claim has often been made that a special, lower capital gains tax, is appropriate since taxation already occurs at the corporate level.
Whether or not you agree with the conclusion - the logic for this argument is undeniably sound for the tax on qualified dividends of corporations. A corporation earns income, they pay an income tax, and they pay part of that income to their shareholders - which is then taxed at the lower cap gain rate. Since only corporations doomed to failure would pay dividends for very long without posting a profit - they are paying those dividends out of funds that have been taxed.
On the other hand - the profit from buying and selling of capital assets do not necessarily reflect income that has already been taxed. Two reasons:
1) not all capital assets that are taxed according to the long term capital gains tax are profit generating corporations. For instance - bonds. If you buy and sell a bond at a profit, that profit didn't come from a company making money, it never got taxed.
2) the profit made from selling a stock does not always come from the company's earnings. If you buy company XYZ for $100, and it goes up to $150 because of what the market thinks its future earnings might be, your $50 profit has not already been taxed as income because it is based on the market projection of income rather than realized income.
So I don't really buy the argument.
Whether or not you agree with the conclusion - the logic for this argument is undeniably sound for the tax on qualified dividends of corporations. A corporation earns income, they pay an income tax, and they pay part of that income to their shareholders - which is then taxed at the lower cap gain rate. Since only corporations doomed to failure would pay dividends for very long without posting a profit - they are paying those dividends out of funds that have been taxed.
On the other hand - the profit from buying and selling of capital assets do not necessarily reflect income that has already been taxed. Two reasons:
1) not all capital assets that are taxed according to the long term capital gains tax are profit generating corporations. For instance - bonds. If you buy and sell a bond at a profit, that profit didn't come from a company making money, it never got taxed.
2) the profit made from selling a stock does not always come from the company's earnings. If you buy company XYZ for $100, and it goes up to $150 because of what the market thinks its future earnings might be, your $50 profit has not already been taxed as income because it is based on the market projection of income rather than realized income.
So I don't really buy the argument.
