Thus, both sets of numbers might well be right.

But who cares? Why should it matter whether the bulk of capital gains are paid by moderate income folks or rich fat cats? Shouldn’t we be guided by whether a policy is just, fair, and wise? And shouldn’t it be just and fair for everyone?

If we were speaking of taxing the very poor for their capital gains, I’d agree in a heartbeat that that’s different. But whether a household has $50K, $100K, or $1 million, I think we’re above the level where hardship can be claimed.

Mostly, though, we should be guided by whatever course meets our revenue needs and also drives the greatest growth and prosperity, shouldn’t we?

So if 0% capital gains makes some super-rich tax free, but spurs enough growth to put millions more to work earning good money, why should we reject it? Just bushwhack them with the estate tax…

So the first $100,000 you make in capital gains is tax free. This limits capital gains to those who have really substantial investments (probably $1 million or more). Thus, it addresses the “makes all money from capital gains” issue nicely.

Now, I’d argue that the capital gains rate should be set as close to the economically optimal as possible, because I’m pro-growth and pro-prosperity. But if you’re more concerned with squeezing the rich, I suppose you could set it as close to the revenue-maximizing rate as possible.

Note that both rates are probably going to be well under 20%, almost certainly under 25%. So setting capital gains equal to income tax is probably unwise, fiscally.

(For those who don’t know, the revenue-maximizing rate is the rate at which the government rakes in the most. Raise the rate past that point and you take in less. Of course, the optimal rate, the rate which maximizes economic growth, is always under the revenue-maximizing rate. So your choice is really between more money now and more money down the road… )

Private equity owners are indeed culpable. But you don’t go after them on the basis of capital gains, you need something else — I just don’t know what.(yet) I was thinking about this a couple of days ago and had a glimmer of a thought. If I can work it out I will post.

My problem with the whole hedge/derivative structure is that it creates something of apparent wealth out of nothing, giving commissions to the purveyors of that something, and then evaporates like the morning dew with only the managers generating a profit.

As for your capital gains facts, they appear to be incorrect or dated. According to this link, the wealthiest 1% of Americans got 70% of all long-term capital gains, while the poorest 60% of Americans got 2%. Benefits to the market aside, AM is right — lower capital gains rates benefit the fat cats far, far more than folks like you or me.

As for hedge fund managers, you are correct, I did mispeak. It’s actually the private equity bosses that play economic voodoo games to have almost all their income show up as “capital gains” and thus taxed at a lower rate.

I don’t believe that I mentioned that dividends were to be taxed as capital gains. Dividends are income and a farmer’s apple sales are in fact dividend income. Actually, I believe that dividends should be considered ordinary income and afforded no special treatment.

AM …you’re allowed to deduct losses so you’re only taxed on the income you actually receive, just as you should be.

Well AM, you’ve obviously never taken any capital gain losses. You can deduct only up to $3000 in losses a year. (caveat —may have changed recently). So if I invested in Enron and got wiped out to the tune of say $300,000, which, say was my nest egg (that is to say, I didn’t have any more money to reinvest to provide gains), then it would take me 100 years of 1040 Sch. D. filings to write down that investment. Clearly, capital gains are NOT treated equally.

ANM…he chooses to lend money to a bank, corporation or government. Any returns he gets on this investment are considered income.

Well actually, lending to a bank is essentially depositing money for which the bank pays interest. Since interest is taxed as ordinary income, it is risk protected (up to $100,000) by the government. (FDIC) Any Gates out there is unlikely to drop one huge chunk in a single bank. Most will ladder their deposits over multiple banks to assure FDIC protection. But the argument is it’s ordinary income because there is no risk. There is no equivalent mechanism to lend money to corporations/governments — these are commercial paper and bonds and fall in column #2 as capital investments and are taxed as capital gains.

ANM…Uncle Sam is taking some of his rewards, but also shouldering some of his risk.

Why ever would you consider a taxing body as ’shouldering’ some of the risk?

AM …why should the fat cats and politicians get a loop hole?

I seem to recall that 47% of capital gains filed were from household incomes less than $50,000, and 79% were from households with incomes less than $100,000. Your ‘fat cats’ are skinnier than you think. Even Obama has come to realize that he can’t think like this. His proposed 28% cap gain tax is being reworked to 20% (Same as Hillary).

And as for hedge fund managers, whom I believe are on the forefront of fiscal irresponsibility, most of their income is not from cap gains but from bonuses which are treated as ordinary income.

Every other form of income is taxed, why should the fat cats and politicians get a loop hole?

A better analogy is as follows: Bill Gates has lots of money. Unless he chooses to hide it under his bed, he has two basic investment options: debt or equity. In the first column, he chooses to lend money to a bank, corporation or government. Any returns he gets on this investment are considered income. In the second column, he chooses to buy stock by handing his money to a former stockowner. This makes Bill a part-owner of a company. If the company sends Bill a dividend, this is considered income. If Bill sells the stock at a higher price to someone else later, this is considered capital gains. Both options entail risk. Column #2 entails more risk since creditors are closer to the front of the line than owners if the company goes belly-up. Likewise, if the company loses some but not all value, the debt-holder still gets paid, but the owner loses big-time if they decided to sell.

In APO’s gilded-age “paradise”, if Bill Gates invests in equities with no dividends, he never pays taxes again. He assumes all the risk and gets all the rewards.

In real 21st century America, Bill Gates pays taxes on his capital gains. BUT, Bill also can count capital losses against said gains for tax purposes. Meaning that Uncle Sam is taking some of his rewards, but also shouldering some of his risk.

Is there a capital gains tax level where it manifestly discourages investment? Sure. But experience of almost every nation in the world has shown, it’s a hell-of-a-lot larger than 0%.

Sorry, APO, but your firm desire to return America to the untrammelled excesses of the guilded age, does not good policy make:)