PICAYUNE —
One of the many false talking points of the Obama administration is that a rich man like Warren Buffett should not be paying a lower tax rate than his secretary. But anyone whose earnings come from capital gains usually pays a lower tax rate.
How are capital gains different from ordinary income?
Ordinary income is usually guaranteed. If you work a certain amount of time, you are legally entitled to the pay that you were offered when you took the job. Capital gains involve risk. They are not guaranteed. You can invest your money and lose it all. Moreover, the year when you receive capital gains may not be the same as the years when they were earned.
Suppose I spend ten years writing a book, making not one cent from it in all that time. Then, in the tenth year, when the book is finished, I may sell it to a publisher who pays me $100,000 in advance royalties.
Am I the same as someone who has a salary of $100,000 that year? Or am I earning $10,000 a year for ten years’ work?
It so happens that the government will tax me the same as someone who earns $100,000 that year, because my decade of work on the book cannot be documented. But the point here is that it is really a capital gain, and it illustrates the difference between a capital gain and ordinary income.
Then there is the risk factor. There is no guarantee to me that a publisher will actually accept the book that I have worked on for ten years — and there is no guarantee to the publisher that the public will buy enough copies of the book to repay whatever I might be paid when the contract is signed.
Even the $10,000 a year — which is less than anyone can earn on an entry level job — is not guaranteed. If my years of work produced an unpublished manuscript, I would not even have been among the first thousand writers who met this fate.
Very similar principles apply to businesses. We pay attention to businesses after they have succeeded. But most new businesses do not succeed. Even those businesses that eventually turn out to be enormously successful may go through years of losing money before they have their first year of earning a profit.
Amazon.com spent years losing money before turning a profit for the first time in 2001. McDonald’s teetered on the edge of bankruptcy more than once in its early years. Desperate expedients were resorted to by the people who ran McDonald’s, in order to just keep their noses above the water, while hoping for better days.
At one time, you could have bought half interest in McDonald’s for $25,000 — and there were no takers. Anyone who would have risked $25,000 at that time would be a billionaire today. But there was no guarantee at the time that they wouldn’t be just throwing 25 grand down a rat hole.
Where a capital gain can be documented — when a builder spends ten years creating a housing development, for example — then whatever that builder earns in the tenth year is a capital gain, not ordinary income. There is no guarantee in advance that the builder will ever recover his expenses, much less make a profit.
There are whole industries where no one can expect to make a profit the first year — publishing a newspaper for example. Virtually every major American airline has lost money in some years, and some of the biggest and most famous airlines have ended up going bankrupt.
If a country wants investors to invest, it cannot tax their resulting capital gains the same as the incomes of people whose incomes were guaranteed in advance when they took the job.
It is not just a question of “fairness” to investors. Ultimately, it is investors who guarantee other people’s incomes in a market economy, even though the investors’ own incomes are by no means guaranteed. Reducing investors’ incentives to take risks is reducing the jobs their investments are likely to create.
Business income is different from employees’ income in another way. The profit that a business makes is first taxed as profit and the remainder is then taxed again as the incomes of people who receive dividends.
The biggest losers from politicians who jack up tax rates are likely to be people who are looking for jobs that will not be there, because investments will not be there to create the jobs.
Columns
Capital gains taxes really are fair
- Columns
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- Vocability Words can be both familiar and extremely confusing when taken from their usual context. Ask any wine enthusiast about legs, fat or bricks and they may assume you are speaking “Vinonese.” Ok — I made that word up; but the language of wine does indeed include legs, fat and brix which have entirely different meanings from what you might assume. Working with definitions from http://www.wineschool.com/vocabulary.html, try your basic knowledge of “Vinonese.”
- Vocability Words can set a tone for a situation, alter someone’s perception of an individual or group — in short, there is power in them. The Bible cautions, “Death and life are in the power of the tongue...” — Proverbs in 18:21, ASB. With that in mind, I will be focusing on words, some recently used and some obscure, to test the readers and build on what you already know. There will be theme weeks, for instance next week will focus on words involving wine — for no particular reason! So try your vocabulary skills with the following and see how you score. I’m always open to suggestions for material.
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A hard rain is gonna fall...
By Kathryn Jean Lopez/Syndicated columnist
After disappearing during his term in office and bringing scandal to his family and state, former South Carolina governor Mark Sanford is going to Washington, having won election to Congress. And that’s far from the worst story reflecting the current character of our nation.
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Not your mother’s Ladies’ Home Journal
By Rheta Grimsely Johnson/Syndicated columnist
I haven’t seen the Ladies’ Home Journal in about a million years, except maybe in the dentist’s office when I was trying to avoid a television permanently set on Fox News.
Somebody’s grandchild was selling magazines for a school project, and Ladies’ Home Journal was the only one on the list I recognized. Now it comes to the house.
Let’s just say: It’s not my mother’s Ladies’ Home Journal. This month, right behind a feature called “A Country of People Who Never Stop Eating” is one called “Nice Girls Do Get Tattoos.” -
Health care market needs oversight
By Gene Lyons/Syndicated columnist
Sometimes the best journalism explains what’s right under our noses. In Steven Brill’s exhaustive Time magazine cover article, “Bitter Pill: Why Medical Bills Are Killing Us,” it’s the staggeringly expensive, grotesquely inefficient and inhumane way Americans pay for medical care.
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VA’s appalling failures not recent
By Sid Salter/Syndicated columnist
While recent national press attention to ongoing problems at Mississippi’s G.V. (Sonny) Montgomery Veterans Administration Medical Center in Jackson is welcome and needed, the failures of the overall VA service apparatus in Mississippi are not recent problems.
In short, former U.S. Rep. Sonny Montgomery — Mississippi’s “Mr. Veteran” and author of the modern G.I. Bill that bears his name — must be spinning in his grave. There have been significant failures and poor service to veterans documented by state and local media since 2008. -
Dolley Madison politically savvy
By Cokie and Steven V. Roberts/Syndicated columnists
When Dolley Payne Madison became first lady in 1809, she instituted Wednesday evening gatherings at the White House where political rivals could meet and talk. They were called “squeezes” because so many people showed up and crowded the room. As Cokie wrote in her book “Ladies of Liberty": “All were welcome as long as they were appropriately dressed. And all went — skipping a Wednesday night might mean missing a vital piece of political information or being left out of a crucial deal.”
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Mississippi isn’t immune from national college tuition trends
By Sid Salter/Syndicated columnist
Higher education in Mississippi has not been immune from national trends cited in a recent Center on Budget and Policy Priorities report which concludes that over the last five years, the global economic downturn and a “no new taxes” political climate have increasingly shifted the burden of higher education finance to students and parents at a time when enrollment is increasing and the percentage of state support is decreasing. -
Right to vote not ‘racial entitlement
By Donna Brazile/Syndicated columnist
The Supreme Court heard oral arguments in the case of Shelby County v. Holder — a challenge to the Voting Rights Act of 1965, specifically Section 5, which requires states and localities with a history of voting discrimination against racial and language minorities to get “pre-approved” by the federal government before changing how elections are conducted or voters are registered. -
1st day of spring brings memories
By Wyatt Emmerich/Southside Sun
The first day of spring! My favorite month, April, is just around the corner. Now we just need one big gullywasher to get rid of the pine pollen.
Normally, spring gives me a strong sense of rebirth and renewal, but this spring I seem surrounded by moments crystallizing the passage of time.
It was a year ago, I walked up the porch to my mother’s home to box up her possessions following her funeral. - More Columns Headlines
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