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Strategies & Market Trends : Stock Attack II - A Complete Analysis
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To: Terry Whitman who wrote (19288)9/19/2001 8:14:35 PM
From: Art Bechhoefer  Read Replies (1) of 52237
 
>>why is it fair to tax investment income at all?<<

It's fair to tax any form of income, if there is a public need to raise revenues. The question is whether it is fair to tax investment income DIFFERENTLY from other types of income. To which I would answer that investment income is realized only by taking risks over time. If the tax system does not encourage risk taking, then few will take risks, or they will take less risks than otherwise.

I would also offer another suggestion, not altogether different from a libertarian view. Interest income should be viewed as a return of capital rather than as taxable income. Then there would be no taxes on interest UNTIL all the principal had been paid back, after which the additional income would be taxed as a capital gain--that is, at ordinary income rates adjusted for inflation.

The main point is that a preferential rate on capital gains, by which I mean a rate substantially less than that for ordinary income and substantially less than income adjusted for inflation simply creates lots and lots of loopholes and destroys the equity needed for a viable tax system. If it's inequitable, a lot of people will figure out ways to avoid paying it.

Art
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