A Capital Gains Tax Proposal

It seems that Republicans are constantly agitating to lower taxes on capital gains, which are income made almost entirely by the rich.

The argument for reduction is normally based on inflation. Capital gains are, allegedly, mostly made on long term investments. The returns on these investments come in inflation-reduced dollars- a hundred dollars in, say, 2005, was worth more than a hundred dollars today.

I must admit that I find a good deal of logic in this argument. It is unfair to penalize long-term investors for inflation. However, simply lowering capital gains taxes rewards short term investors and money managers at the expense of those who invest in the long term health of our economy.

Here is a proposed capital gains tax reform which would provide a remedy for this problem without providing an unearned benefit to speculators.

Take a look at the chart above. It represents the value of a dollar today in dollars from previous years. The chart only goes back ten years, but it could easily be extended. It is based on numbers from the Bureau of Labor Statistics. A dollar today, for example, is worth 87.31 cents in 2005 dollars, 74.81 cents in 199 dollars.

I am suggesting that a chart like this be included on capital gains tax returns, to be used in calculation of the taxable amount of those gains. For example, $100.00 realized in 2009 on an investment made in 2005, would result in a taxable income of $87.31. This would totally compensate the investor for the effects of inflation. Capital gains would then be taxed at the same rate as all other income.

Why has this simple idea not (as far as I know) been suggested before? Is it because I, without any kind of training in economics, am a genius beyond the comprehension of even the Krugmans of this world? Unfortunately, I can't convince myself of that (I tried.) No, there is a real reason why simple solutions to problems like this are rarely adopted. It is because the rich don't want to pay a fair share of taxes, they don't want to pay any taxes at all. They are, by and large, driven by nothing but greed, and have no interest in contributing anything to provide the services and protections they demand. Thus, they use their captive political party (the Republicans, in case you haven't guessed) to prevent reasonable solutions to problems like this, in the hope that eventually, they will be able to ram down people's throats a fix that provides them with a giant windfall. All too often, this strategy works, with eventual results such as we are experiencing today.

It's time to put a stop to this behavior. That's really what we elected Obama to do, and if he can accomplish this in any measure, he will be a great President.