Capital gains is a fraudulent tax.

Which has exactly nothing to do with the thread topic, and you are misusing "book value" to boot.

 

The OP stated that capital gains are "not indexed to inflation." I stated, the "stock market tend to outpace inflation, therefore, whether or not they're indexed is irrelevant." The only way this can be "nothing to do with the thread topic" is if you don't understand either, 1) Capital Gains, or 2) Inflation.

The relationship with holding period returns is very much relevant to the nonsensical point that "inflation erodes capital gains," which is historically untrue.

How did I misuse "book value?"

 

Going against the grain but I'd rather see an increase in capital gains tax.

 

If your asset is not worth more in the future...then there is no capital gains...

 

Or inflation can wipe out real gain, because the value of money is constantly decreasing. That devaluation needs to be calculated into the Capital Gains.

 

Someone buys a property for $100K and sells it 20 years later for $1M. This person invested $100K (in yesterday money) and now has $1M (in today money). If this person decides to buy an identical house and it's price is $1M, they can do this with their $1M. Or they can just have $1M in cash lying around. It's obvious this person would not have $1M in cash today if they had not invested $100K long ago so there obviously is some wonderful gain. Now comes the part how our government wishes to tax us...in this case basically $1M minus $100K equals $900K gain. You want to factor positive and negative inflation against the $100K (like 3% per year over 20 years). If we're talking about a property, or shares of stock, a business, etc. none of them are going to increase according to inflation rates. All the valuations will increase/decrease based on perceived demand of the assets. I've got Apple stock that cost $2/share...so how would you tax the $1M property sale and Apple stock sale?

 

Look this is not that difficult, and I am sure you can grasp it if you try. A 4% inflation rate over a 20 year period cuts the value of the future dollars about 60%.
Given your scenario, the million dollars the seller got for their property was only worth $400,000 in the value of the money he originally invested. Another way to look at it is that his cost basis should be adjusted to account for inflation in order to compare apples to apples. His $100K in yesterdays dollars is equivalent to $220K at the time he sold the property and should be his cost basis.

 

You didn't answer my question; how are you going to do this with a $2 Apple stock selling for about $220 today? Your 4% inflation has nothing to do with today's value of Apple. Regarding property, today's value has little to do with inflation and more to do with perceived demand in the area where the property is located. Here in CA a $100K property from 40 years ago might be worth $5 million today...no way resembling inflation rates.

 

It has nothing to do with the value of Apple, it has to do with the decling value of a dollar. If you cannot understand the concept of inflation please refrain from answering any more of my posts as you are just wasting my time.

 

OK let's tax it all as normal income, which is much higher than capital gains.

 

But capital gains IS income. Why should it get it's own special tax rate that is lower than other income taxes? It should all be taxed as part of a person's income. So if a rich guy makes a few million selling stock, he pays 37% on it, along with the rest of his income, instead of only paying 20% on it.

 

Why not eliminate all income tax?

 

Do you belive that tax by force is moral?