Thursday, October 20, 2011

The Silliness of the "Double Taxation" Argument

Economic conservatives like to argue that capital gains, that is, income from investments, shouldn't be taxed because it amounts to "double taxation", that is, the person with the investments worked to earn that money, and it was taxed when he received it. The argument is baloney. Let's say you've saved a chunk of money, say $100,000, and now have that money invested in an interest-bearing account (this analogy also works for investments in stocks, etc). You are, indeed, taxed again, but only on any PROFITS that you have made from that investment. In other words, you are not taxed again on that initial $100,000, and in fact if you don't make any more money from it you won't be taxed on it. You are only taxed on any PROFITS you make off of the investment; this is self-evidently money that you have never had before; it is NEW money to you. So it makes no sense at all to say that you are being doubly-taxed on income from investments.

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