No New Taxes

I thought about this idea this morning while taking a shower because I do most of my good philosophizing in the shower.

One of the platforms that Obama espoused was of raising billions of dollars to redistribute to the poor and middle class by raising the capital gains tax. I think the last few months have proven that there will be no wealth distribution because the government cannot afford it at this time. Instead, they will raise taxes by every means possible in order to pay back the interest on the nearly $1 TRILLION that they have borrowed from the Middle East and China to prop up banks.

But more importantly, one needs to understand capital gains. A capital gain is the positive difference between what you paid for a security and what you received when you sold it. For example, if you purchased $1000 worth of stock last year and it is now worth $1500, then you would have a capital gains tax applied to the $500 difference. However, if you sold your stock at a loss, you have a capital loss. You do not pay taxes on the difference when you sell stock that is now worth less than when you bought it.

Then you need to understand the difference between long-term and short-term capital gains tax. If a security was held for less than a year, you would pay a short-term capital gains tax rate. If you held it for more than a year, then you would pay a long-term capital gains tax rate. Because the government wants to encourage investment it rewards you with a lower tax rate for holding onto a security for more than a year.

Now the problem is that if you have been paying attention to the stock market, then you know that it is down nearly 40% in the last few months. And that's for the Dow Jones Industrial Average, which is a compilation of 40 stocks, not the entire stock market as most media fools believe.

Look at some stocks. GM stock is down to its lowest levels in 60 years. Ford is at decades-low. Even the stock here at Consolidated American Conglomerated Industries of America is down 65% in the past few months. I have been buying our stock for over 10 years and my cost basis is such that I no longer am in the black. My cost-basis is now higher than the value of the stock, meaning I spent more money to buy it than it's now worth.

How is this important to Obama? If I sold all of my stock in CACIA Inc, then I would not be paying any capital gains tax. I'd be receiving a capital loss that would count against the amount of tax that I would pay. How does this help Obama when he's actually getting less taxes? I'm not blaming this situation on Obama, but I think it's clear that raising capital gains taxes will not accomplish anything that he wants.

And let's not forget - you cannot tax a society back to economic recovery. If people have less money to spend, then they will be spending less money. Duh! If anything Obama needs to find ways to stimulate rich people (that's right, rich people) to invest more money into production so that they hire more people. This will not be accomplished by taxing them more. If you tax rich people, they stop investing money into the means of production and the pool of needed workers will shrink. It's simple economics.

So, what's my point? If you want to be smart you should take a shower with me, because we can get some great thinking done, but only if you're a hot female.