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To: golfinvestor who wrote (91284)	1/4/2001 8:35:25 PM
From: kech	Read Replies (2) \| Respond to of 152472

Art and GolfInvestor (By the way GI I loved your Cabi joke today i.e. his e-mail is Cabi@imshortqcom.com) - As GI indicates there is an argument against taxing Capital Gains the same as personal income because in a world with inflation, part of capital gains are simply a return of capital that has increased in value in nominal terms and not income at all. So at the very least, capital gains should only be taxed after subtracting an index for inflation. But then there is the remainder which has increased above the rate of inflation. Are these inflation adjusted capital gains doubly taxed? I have heard this as a criticism of taxing dividends, i.e. that the companies already paid income tax and then individuals pay a tax on these dividends - so the same income stream is taxed twice. So I gather then that, to the extent capital gains on corporations are based on the capitalization of income streams on which corporations have already paid taxes once, then the argument is that individuals should not have to pay taxes on the capitalization of that income stream when they sell securities that have appreciated because of it. Hmm, sounds good to me. Art - the problem with solving income distribution issues by differentially taxing one factor of production (capital) at a different rate than others (labor) is that it causes distortions in the use of those factors. Economists would argue that you should adjust income distribution with changes in rates on different levels of income not with different rates for different factors. But this is probably what you were saying when you said most economists don't like a different rate for capital gains. But if capital gains are partly just a return of property due to inflation and also are based on already taxed income streams, then there is clearly a good argument for a lower rate for capital gains, if not a zero rate. On the margin requirements I think they avoid tampering with margin requirements because they feel that it would only affect small investors since large investors like hedge funds etc don't need to use this mechanism.