Wednesday, January 2, 2013

Income from Speculation: Still Untaxed

When all the Bush era tax cuts expired on January 1, they got hurriedly rewritten to restore cuts for those below $400,000 in annual income.  Including the zero-percent rate for income from "long term" (more than one year) capital gains (which is most often income from financial speculation) for individuals whose total income is below $400,000 in total income (or something like that, I'm not a tax expert).

So say you don't work a single day, but cash out stock all year as needed.  So long as your net gain on that stock (over the price originally paid) does not exceed $400,000, you pay no tax (as I understand it now)!  If you had earned $400,000 on wages, you'd be paying a pretty big chunk.  Even if your net stock gain exceeds $400,000, you continue to pay rates about half as high as those for wage income beyond that point, with a continuation of a 15 or 20 percent long term capital gains top rate (I'm not sure which.  BTW Clinton's tax deal of 1997 cut the top capital gains rate from 28 percent to 20 percent.  So Clinton, egged on by Republican Congress, gave the financial income preference a big boost.)

As I have said many times before, the biggest injustices in the tax code revolve around a completely misguided preference for financial income, which is generally speculation and not investment in real stuff.  This tax preference doesn't fuel job creation, it actually fuels disinvestment and job destruction, as we have seen since the Reagan administration, and especially since the GW Bush administration.

[This column is not intended as tax advice and may contain factual errors.]

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