Capital Gains Taxes and Inflation – The Government’s Own Tag Team

by Ron Haynes

We all know that taxes can have a devastating effect on our pursuit of wealth but inflation makes the true tax rate on our gains much higher. Under recently passed “healthcare” legislation, there will be a new 3.9 percent increase in the capital gains rate in 2013 and another jump of 20 percent if the President gets HIS way. So much for helping the middle class.

As bad as this sounds to people who actually understand economics, it gets much worse for investors and business owners. Imposing a tax on inflationary gains can literally wipe out everything you made … maybe even more.

For those of you at work that can’t see the video because your MIS department blocks it:

The mini-documentary uses an example of what happens to an investor who bought an asset 10 years ago for $5,000 and sold it this year for $6,000. This year, the IRS will want 15 percent of the $1,000 gain (Obama wants the tax burden on capital gains to climb even MORE to 23.9 percent). Some people may think that a 15 percent tax is reasonable, but how many of those people understand that inflation during the past 10 years was more than 27 percent, and $6,000 today is actually worth only about $4,700 after adjusting for the falling value of the dollar?

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I’m not a math genius, but if the government imposes a $150 tax (15 percent of $1,000) on an investor who lost nearly $300 ($5,000 became $4,700), that translates into an infinite tax rate. And if Obama pushed the tax rate to almost 24 percent, that infinite tax rate gets … uhh … even more infinite?

What do you think? Should capital gains at least be indexed to inflation like our other taxes? The right capital gains tax, of course, is zero.

I don’t know about you, but I hope we get some semblance of sanity back into our elected official’s brains pretty soon. Between my health insurance premium increase, the incredible rising cost of food, and the eternal threat of more taxes, I don’t know how much more I can take.

About the author

Ron Haynes has written 987 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.