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Misconceptions on Capital Gains Tax

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Misconceptions on Capital Gains Tax

Hilary Clinton has declared that she intends to double the rate of capital gains tax for investments that have been held for less than six years, a move which has been criticized by many.

What is capital gains tax?

Individuals and corporations are required to pay tax on the total of all their capital gains. The rate in which they pay in tax depends on the amount of time the investment was held and also on the investors’ tax bracket.

Short term capital gains are investments which have taken place for a year or less, and investors’ ordinary tax rate help set the price.

Long term capital gains are investments which held for over a year and the rate for this is lower than for short-term capital gains.

What is Hilary Clinton proposing?

Hilary Clinton, the Democratic presidential candidate, has offered to change capital gains tax.

Instead of capital gains being a two-tier system, as it currently stands, Clinton is proposing a multi-tier system.

  • Earnings of over 1-2 years would be subject to a rate of 39.6%
  • Gain which took place for 2-3 years would have a rate of 36%
  • After that, the rate would then decline by 4% per year
  • The decline stops at six years when a long-term rate of 20% then applies

The proposal has been designed to deter short-term investments and encourage more long-term investments, something which Clinton believes is lacking.

As appealing as the new proposals may be, it doesn’t take away from the fact that the higher the tax for something, the fewer the people will participate.

There are fears that by increasing tax on investments, new investors will be put off investing in new businesses. New business encourages new job growth. There is currently a slump in new businesses and job growth and a small investment, and participation rates are key reasons for this.

The most commonly misunderstood tax is the Capital gains tax, and there are a lot of misconceptions surrounding it. Hilary Clinton has given many reasons for why her proposals would be good for the economy and American citizens.

If you examine Clinton’s misconceptions one by one, however, they paint a different picture, a picture which shows great ignorance on Hilary Clinton’s part.

Below are some common confusions over capital gains tax.

Capital gains tax is lower than the tax on working class earnings

Capital gains mainly come from sales of financial assets. Public companies, on the other hand, pay a corporate income tax at the rate of 35%, capital gains tax would be another tax on that income on the sale of stock.

Capital gains tax is calculated on the increased value of stock and not an inflation adjustment. In times of high inflation, any increase can be seen as illusionary based on the fact that the gain is due to inflation.

Investors are required to pay tax on all their capital gains. However, they are only required to deduct a small share from their losses. This little stock can have an effect on tax codes.

Raising capital gains tax will help in gaining Billions of dollars

An increase in capital gains tax is unlikely to result in any financial growth.

In 1986, the rate rose from 20% to 28%. This increase resulted in revenue falling from $44 billion to $27 billion by 1991. When the rate was increased back up to 20%, this led to the revenue increasing from $54 billion in 1996 to $99 billion in 1999. 

Raising capital gains tax will help make people pay taxes better

Despite assurances that raising capital gains tax would increase the tax bill for the wealthy, the reality is that those who can, are most likely going to hold their assets to avoid the high tax penalty.

This rise in tax is probably going to hurt those who cannot afford the penalty.

Raising capital gains tax will not hurt investments

If investors believe that the risk of investing is too big, then they will not invest. Raising capital gains tax will add to the risks which put investors off. History has shown that investments in new businesses are lower at times when capital gains tax is high.

Instead, we need to be encouraging new investors into the markets, not putting them off by introducing more risks.

Raising capital gains tax will boost the economy

Capital gains tax will hurt small businesses, American competitiveness, and workers. America already has one of the highest corporate tax rates in the world.

It has been proven that high tax rates do not always equal higher economic growth, and capital gains tax is one of those which don’t.

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Business

American Firms Keep Hiring, Easing Worries of Weakening Economy

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The unemployment rate is “now at a half-century low of 3.5%” – this matches the lowest jobless rate since 1969 – and economists have also given a warning that hiring would soon slow because there are fewer unemployed workers. However, in November, employers added 266,000 jobs – the highest number since January. Monthly hiring has averaged 205,000 for the past three months.

Associated Press reported that “Friday’s jobs report largely squelched fears of a recession that had taken hold in the summer. Steady job growth has helped reassure consumers that the economy is expanding and that their jobs and incomes remain secure.”

President Trump tried to focus voter’s attention on the state of the economy instead of his impeachment inquiry. Trump even tweeted “JOBS, JOBS, JOBS!”

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Economy

Could Trump’s Tariffs Hurt The U.S. Economy?

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Could Trump’s Tariffs Hurt The U.S. Economy

About a year ago, the media was talking about how Trump’s trade wars could negatively affect many industrial companies, the agricultural sector, and right down to the every day American worker.

The recent stats from Gross Domestic Product has now revealed the current reality of Trump’s multiple front trade war.

Data shows that imports increased, while exports decreased by over 5%. Business investments have declined by 0.6%, and this decline has been happening since 2016. Most North American corporate capital spending is also on a declining trend.

Trumps’s tax reform was short-lived for most American companies. We did not get many benefits from the trade tensions either. U.S. corporate debt is getting much worse and far more significant than household debt.

Many are speculating that the cutting interest rates will lead to more zombie companies that will threaten both the U.S. and global economy.

Click here to learn more.

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Economy

CryptoRuble | Cryptocurrency in Russia

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What do you get when you implement cryptocurrency in Russia? Cryptoruble! Read on to find out how Russian cryptocurrency is doing.

CryptoRuble | Cryptocurrency in Russia

Russia’s Pivot Toward a Pro Cryptocurrency Policy

Prior to the great boom which propelled Bitcoin over $7,000, both Russian bankers and politicians alike voiced their conflicting opinions and hesitancy toward the cryptocurrency.

Vladimir Putin called for tighter regulation of cryptocurrencies only a month prior to his speech where he touched on nurturing the new technology, while authoritative bankers compared cryptocurrencies to Ponzi schemes.

At one time, a proposal was made that would punish those owning bitcoin with up to seven years in jail for a violation.

Recently however, these antagonistic statements from central banks and the Kremlin have pivoted with a series of official announcements that would strengthen Russia’s position as a possible focal point for the impending and inescapable cryptocurrency revolution. The major impetus for this considerable change in rhetoric is demanded from people all over the world for digital cash as instruments of investment, payment, and more. The people’s demand hasn’t fallen on deaf ears in Russia.

But the Russian elite have answered the people’s call in a uniquely Russian way.

To everyone’s surprise, President Putin, in late October of 2017, announced his support for cryptocurrency in Russia and subsequently ordered legislation that would put into place infrastructure for its national adoption.

Unique legal frameworks has since been conceived for the taxation of cryptocurrency mining, regulating initial coin offerings (ICOs), developing blockchain technology in business, and establishing a far-reaching system of payment for Russian citizens.

Perhaps, the most astonishing statement given by President Putin’s was his announcement that Russia intends to form a digital crypto rendition of the ruble termed the ‘CryptoRuble’. The CryptoRuble is supposed to be interchangeable with the ruble on a 1:1 ratio. Quite dissimilar to other more ‘traditional’ forms of cryptocurrencies, the CryptoRuble will not be able to be mined and will be exclusively issued by the Russia’s central bank. This kind of approach is distinctly Russian, and is based on years of meticulous observation of how various forms of cryptocurrency has previously affected other countries.

This Russian model cedes some economic freedoms for government control, while still preserving and incorporating the technology’s primary advantages.

Additionally, an unchangeable ledger will make citizen cash flows transparent to the government and help stem fraud and corruption. In theory, it should also help to bring down walls of previous systems plagued by middlemen.

CryptoRuble income is expected to be taxed at a rate of 13 percent for those wo’re unable to provide a legitimate source for it. Not only is this an attempt at preventing corruption, but it’s also a way the Russian government can profit from it.

Russian leadership is likely to remain watchful of any new methods they can use to achieve a competitive edge in international politics, finance and trade.

Cryptocurrency seems to be one of the most likely channels for increased influence across borders; thus, Russia’s pivot toward a pro-crypto policy stance is quite logical.

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