Just what they title says:

Why have one?

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If I had the option of voting 2000 and 2004 over again, I would still vote Bush.

And if Obama gets his way it will be even higher. Unreal! Is it his goal to take away any incentive to invest? He says he won't raise taxes for those making less the 250K but there are a heck of lot of people out there that invest in the markets that make a lot less than 250K. Any time to tax the wealthy you also tax the poor and middle class because the rich and corporation just pass it on to everyone else when they buy their products.

Look, you have to understand that the Capital Gains tax is necessary NOT JUST to give the government a piece for allowing a fair market, but it also, and more importantly, keeps money in the market.

Capital gains tax does not prevent someone from investing in the market, it, correctly, makes them think twice about taking their earnings OUT of the market, and it should. Every market recession and depression in the history of any stock market is made worse by panic sell offs and people buying high and selling low, instead of the opposite.

When I worked in the financial market, there is ONE successful way to invest that is almost guaranteed success for both the individual AND the strength and support of the economy. That way is to invest LONG, LONG, LONG term, and keep your money in a diversified portfolio of teh same set of investments. Find strong companies with long term track records, and NEVER sell. Warren Buffet said it best, (and I paraphrase) "The best time to sell a good stock is never". People should be holding on to any dividend paying stocks forever, passing those stocks onto their kids (when capital gains gets erased upon death anyway). Keeping money in these companies solidifies their financial position, makes them better earners of REAL dollars, and prevents market corrections from turning into market recessions.

If you take away the capital gains tax, there is nothing to prevent people from becoming day traders en mass. When that happens, you can completely do away with the idea that any company is safe from complete and utter destruction on any given day based on investor panic.

IMO, we SHOULD raise the capital gains tax above what even Obama plans to. We should penalize people from taking too much money out of the market at any given time, because it makes things worse quickly. Part of the explosion of the tech crash in the early 2000's was the fact that Bush lowered the tax level. Had he not done that, the fall would not have been as severe (though it probably would have still happened).

To summarize, the lower the capital gains tax, the higher the market volatility is. The higher the capital gains tax, the more stable the market is and the more realistic market corrections are.

The more perfect market system would charge NO tax on dividends (encouraging people to stay invested), a 35% tax on capital gains (to encourage people to stay in and collect dividends), tax breaks to corporations that pay dividends, and even higher short term capital gains penalties on things like short selling, day trading, etc. We would have completely prevented the bank/insurance fallout of the last week (though Fannie and Freddie probably would have still failed).

BTB - Thank you for that explanation. It does make sense.

Also, isn't capital gains pretty much the same thing as income, only you didn't have to actually work for it?

Over a hundred and fifty years ago, investing in the stock market was a much more literal thing. You actually felt like you were buying into a legitimate stake in a concrete company. Of course, you couldn't phone in purchases or trade regularly as an individual. You either traveled to the local exchange or a broker traveled out from town to town selling stock for ONE specific LOCAL company. When you invested, it was a well thought out, deep decision based on knowing the ins and outs of that company, and how that investment helped the company and you.

Now, investing has become a form of gambling. People make the most uninformed decision based on numbers they don't understand and formulas that are usually misguided. The ultimate goal of course is to try and make as much money as quickly as possible. Its no longer about the American dream of owning a stake in a real company that they believe in. If we went back to the idea of investing in companies that we truly wanted to own and believed would help us as much as our investment would help them, we might feel like REAL investors that are earning the stake we have in the company. Thats what the market should be, but it hasn't been ever since the first stock tickers went out nationally and telephones and lately computers allowed people to trade recklessly without regard to actually owning something tangible as a goal in our life.

Yeah it is but look past that. It helps businesses so it creates jobs. It sucks but it works.

Does one pay the capital gains tax when taking money OUT of the market AND putting it IN, or just taking it OUT?

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The modern conservative is engaged in one of man's oldest exercises in moral philosophy...the search for a superior moral justification for selfishness. ~John Kenneth Galbraith

Some men change their party for the sake of their principles; others their principles for the sake of their party. ~Winston Churchill

The Christian Right is neither

The only reason is "Fairness"

By every account, a capital gains tax screws all of Americans even those not paying it.

You only pay capital gains tax when you have actually profited on an investment AND sold the investment, and you only pay taxes on those profits, not the principal you invested. If you never sell, you never pay those taxes. When you die, the 'cost basis' or taxable profit level, gets changed to the level that your investment was worth when you die.

Example -

You put 10000 in the stock market in one stock (mutual funds work much differently, so I won't even try to explain it).
The stock goes down to 8000, up to 12000, down to 6000, up to 15000, and finally, you sell the stock at 11000. Right now, you are responsible for paying a 15% tax on the 1000 profit you made, or $150. At the end of the day, you made 850 that you get to keep on top of your 10000 in principal.

Don't forget, there IS a capital loss that you can claim. So say you have one stock that gains 1000 and another stock that loses 600. At the end of the year, when you pay your taxes, you only have to pay taxes on the total gain you have, or 15% of $400. Many of the big time investors find a lot of loopholes that allow them to offset gains with losses. If they happen to own apartment complexes, urban real estate buildings, commercial semi's, tractors, etc, you get to claim depreciation losses and offset those against gains you make in the stock market. In this way, some of the uber rich that manipulate the market correctly will be able to get away without paying ANY capital gains tax some years. You and I can't take advantage of those loopholes necessarily because we can't afford to create the same type of loopholes that they have.

The way cost basis upon death works is that if you invest 10000 at age 20, and never sell the stock. Even if the stock is worth 50000000 when you die, your heirs are not on the hook for the profits the stock has made. However, they would be subject to estate taxes for any inheritance passed on over 2000000.

So the money I set aside out of my middle-class income to invest in the capital and technology in the future should be handed out as charity? I mean I'm asking for 10% of that work if in the stock market. You're right. That money I worked hard to get and am now placing in the market for more jobs, capital, and an increased standard of living is something that I should have just spent for Chinese goods, a house I couldn't afford, and a brand new BMW. That is how I should spend my working income.

So to boil down the posts so far is this...

We should have a Cap Gains tax so the government can punish people for pulling money out of the market for whatever reason they have.
Who owns the economy? Or the Stock market? or the Commodities market? or the Real estate market?
Who owns my money? Shouldn't I get to decided where I spend or invest my money?? Shouldn't I be responsible for losses?? Shouldn't I get to keep and reinvest gains if it is my money??

Here is my perspective... I want my money to grow and I want to invest in companies that I think are going to grow long term... I think there are millions and millions of Americans like me... They don't want to have to calculate how much of their money they get to keep and how much they have to pay to the government if they were to pull the seed money they risked and their profits (rewards for their risk).
I feel the same way about the Income Tax... I see a tax as a punishment for a behavior... and you punish a behavior you don't want and reward a behavior you do want... So if government is punishing productivity and investing while at the same time rewarding non productivity and laziness with welfare... You have to wonder what their end game is... ?