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0 pointsvaluearb5y ago0 comments

The reason for giving capital gains a preferred long term rate is inflation. If you invest in business for 10 years and double your money, you've made a 7% annual return. But if inflation averaged 7% during that time you actually made zero economic gains.

A better way to restore progressively to capital gains is to index them for inflation, and then you can tax them at ordinary income rates.

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pashamur5y ago

Yeah, it was an aha moment for me when I understood the reason for the cap gains / normal tax difference.

It makes sense that it's an attempt to index for inflation, although strange that there is only one cutoff (securities held for 1 year taxed the same as the ones held for 10 years); you would imagine some sort of step-down function would make more sense / track inflation more accurately (or indexing directly which is much harder).

So maybe different tax rates for 1/5/10/20 years held?

valuearbOP5y ago

You don't need different tax rates, just indexing.

Lets have a single fair set of rates with progressivity. A rich man in the 35% tax bracket should pay 35% on their capital gains, just as a poor retiree in the 15% tax bracket should only pay 15% on capital gains.

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