Proposed Taxing of Capital Gains

Recently, Barak Obama has proposed taxing of capital gains the same as income.  I have to wonder if he really doesn't understand how capital works, or if this irresponsible stance is a means to get votes from poor people who don't understand how capital works, and that it's somehow some class war thing against the rich.

I had my fears concerning this, so I sent an e-mail to a friend of mine who knows much more about the economy, how it needs and uses capital; much more than most people.  This guy has made me a lot of money in the past, and so I trust him.

Here's what he said:

The economy would be dead in its tracks. The fastest growing economy in the world at the time (Japan) at our urging added a massive capital gains tax in place of none. The Jap economy has never recovered from this. As in debt as our country is we might never recover. This could speed us along on our journey to becoming a third world economy. Got to balance the budget and work on our massive debt before it is too late.

So as bad as the economy has become under George W. Bush, if Obama were allowed to carry out this irresponsible act, it would be devastating to this economy.  In essence, the poor people voting for this would be cutting their own throats.

As bad as things were for Japan, they weren't in nearly as much debt as we are (and the average Joe has caused his own debt as much as George W. Bush and Congress have to the government debt), Japan had the US to help them out economically.  Who will we get help from?

My experience with capital gains was an education.  Less than 10 years ago, I barely knew what the words meant.  In practice, I didn't really know at all, as financial matters bored me and since I wasn't rich, didn't figure any of this stuff would ever mean enough to me for it to matter.  So I didn't care to know.  I think this is how most people are, and that's why there isn't an outcry from people (even Democrats) about the proposed taxes on capital gains.

I once did work for a small startup company.  They filed and became incorporated and I owned stock.  I got stock in place of payment in a lots of cases, and for the final two years that I worked there, didn't get paid at all.  And the company struggled to survive.

Years went by, and that stock was worth very, very little.

If I could've sold some of it immediately after the company went public, I would've made a lot of money, and of course, since I had the stock less than a year, it would've been considered income.  I would've paid income taxes on it just like any other income.

However, I was considered "an insider" and couldn't sell stock at that time.  I ended up not even being able to sell stock for a year, and when I was able to sell, the stock wasn't worth much.

Years went by and for a brief moment a couple of years ago, it was actually work a couple of bucks a share (it aint now).  I was able to sell and get some money that I needed.  However, since years had gone by from my original investment (one of many investments that helps this economy run by providiing capital), it was considered capital gain, not income.

I finally understood what made capital gain and income different.  I also saw how unfair it would be to have expected me to put money into this economy, with no guarantee of any return at all, and then years later, be hit with the same tax as a guy that didn't invest anything into the economy and was able to get his paycheck that Friday after he'd put in his work.

I also think it is unfair to ask someone to put up risk money to run this economy, tax them just like income for this risk (that no one else puts up), and then tell them they can only write off $3000 of capital loss.  Essentially, we're saying that the guy puts up the risk to help the economy, but that he doesn't get any rewards for years, or maybe never, and we'll punish him for this, and that he gets very little credit for any losses.

How do you suppose this will help the economy?

Will there be any incentive to invest if this occurs?

Where will the jobs come from?  Where will the growth come from?

Where do all those college students that vote for this, think their jobs will come  from when they graudate?

Later, in asking my friend why Obama might propose this, trying to see if there were any logic in debating this issue.  There is no debate and Obama even admits this.  He admits that it will hurt the economy, but he thinks it will be "fair".

Hmm.  He forgot to add "stupid".

I only hope that someone comes to their senses on this matter.