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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

Is a Second Stimulus Check Still Happening?

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United States Treasury check being held by rubber glove illustrates US Government coronavirus economic impact payment sent-Second Stimulus Check-ss-Featured

This year’s fall season has never been so hectic and anxiety-ridden. Coronavirus is still a thing. Economies are trying to recover, while businesses are trying to reopen. Jobs are slowly coming back, while schools are in flux. The campaign for the presidency kicked up a notch as it winds to its last stages. Lost in the chaos is an important question among Americans. Is a second stimulus check still happening?

RELATED: New Coronavirus Stimulus Package

Last July, Congress adjourned without coming out with a comprehensive relief program. Both sides continued to negotiate during the break but ended up being further apart. The previous program’s benefits expired on July 31, and until now, there are no new bills. A $600 extra jobless benefit, a moratorium on evictions, and the window to apply for PPP loans all have lapsed since.

President Donald Trump issued executive orders last August that aimed to provide relief. The jury’s still out on the orders, as there were questions on implementation and funding. Now that the Senate is back from recess, there’s hope for a new round of relief for Americans. What the relief package contains is still up for debate.

GOP Proposes the”Skinny Bill”

On Tuesday, Senate Republicans introduced a less-than-expected coronavirus aid bill. It does not have the anticipated stimulus check, but it does have unemployment aid. Instead of the extra $600 unemployment benefit, the GOP proposed half, or $300. The “skinny bill” also includes liability protections for businesses and health-care facilities. It also funded more money for health-care funding and schools. Finally, it also contains the second round of Paycheck Protection Program funding. While the bill provides only a part of the previous relief, it only costs between $500 billion to $700 billion. Unspent funds for Federal Reserve facilities support will cover some of the costs.

All in, $105 billion would go to schools, $16 billion into Covid-19 testing, and $31 billion toward the development and stocking of vaccines. Another $15 billion would go towards childcare grants. Senate Majority Leader Mitch McConnell (R-KY) called it a “targeted proposal.” He said: “We want to agree where bipartisan agreement is possible… get more help out the door and then keep arguing over the rest later.” He hopes that Congress will vote on the proposal later this week.

Democrats Say No Again

In response to the skinny bill, the Democrats remained unimpressed. House Speaker Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schumer (D-NY) noted that this bill won’t help. In a joint statement, they claimed “Senate Republicans appear dead-set on another bill which doesn’t come close to addressing the problems and is headed nowhere.” Dems criticized the bill because it excluded other sectors that need help. Missing are funds for state governments, rental and mortgage, USPS, and food. As a result, the bill likely will not get the needed 60 votes to pass the Senate. It would also take a miracle to get approval in the Democrat-controlled House. 

While acknowledging that Americans need aid, Republicans balk at spending more money. Earlier, they shot down a Democrat stimulus proposal worth $3 trillion. The GOP insisted on a $1 trillion budget and refused to resume talks even when the price tag went down to $2 trillion.

Reacting to the Democrats, McConnell said: “Speaker Pelosi and Leader Schumer said a targeted deal on jobless benefits and the Paycheck Protection Program would be ‘piecemeal,’ but then-Speaker Pelosi came rushing back to pass the most piecemeal bill imaginable: Postal Service legislation.” He noted that this bill “completely ignored the health, economic, and education crises facing families.”

McConnell added: “Everything Speaker Pelosi and Leader Schumer have done suggests one simple motivation: They do not want American families to see any more bipartisan aid before the polls close on President Trump’s re-election. They have taken Americans’ health, jobs, and schools hostage for perceived partisan gain.”

The Deadline is Looming

The November elections are putting the squeeze for incumbents to do something. The White House, in particular, would prefer the release of second stimulus relief aid before the polls. Incumbents facing tough reelection also need party help to boost their chances.

It’s time for parties to realize that there is more than the election at stake. The more important deadline was the one set by everyday Americans. Election year or not, if a second stimulus check will happen, it has to happen now.

Watch CNBC Television: Texas Senator Ted Ruz doesn’t believe Congress likely won’t pass stimulus before Election Day:

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Do you think that both parties can come to terms with submitting a bipartisan bill to provide a second stimulus relief package to Americans? Or has the time run out to come up with something? Let us know how you feel about this by leaving your comments below.

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Business

American Firms Keep Hiring, Easing Worries of Weakening Economy

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Image via Shutterstock

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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