Capital Gains Tax - Advantages And Disadvantages

Lower Or Higher? - Find Out!

July 24, 2004
Bogdan Voicu

Everybody pays taxes. But is it necessary to pay higher taxes? A lot of debate was in the last years about the cutting down of the Capital Gains Tax.

Both those that supported the Capital Gains Taxes and their opponents had some good points to make. Let's review some of them:

First of all, a decrease of the tax would mean that a lot more money would remain to those that can use them in order to invest in stock purchases, new business start-ups, new more productive equipment for the existing businesses. It would also make those that had already invested in assets think of the opportunity of unlocking the capital and invest it.

Opponents of the decrease in taxes have their own arguments. First of all, they say that this tax is more supported by those Americans that are wealthier, because those with incomes above $200,000/year pay a bigger CGT. Second, they think that the decrease of taxes would have little impact on the investments and unlocking effects because those that will have more money to invest would probably invest in offshore assets that hold greater earning potential.

Another debate is whether the federal income would be influenced. Those that want the tax to be reduce say that only at most 5% of the total federal income is coming from CGT, while the others strongly oppose as, they say, it will create a n increased budget deficit that may even worsen United States capital shortage.

Which one of these groups has the right answer? It is probably somewhere in between. All you can do is analyze your own situation and choose what is best for you.