Taxing Capital Gains Fairly
Date
1995
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Haverford College. Department of Political Science
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Award
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eng
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Haverford users only
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Abstract
This paper seeks to find a way to end the unfair treatment of capital gains under the current tax code. Inflation can cause an investment to appreciate over time without the investor gaining any purchasing power. Nevertheless the investor must still pay capital gains tax on this inflationary "gain." Before proposing a plan to counter this problem, the paper draws upon books, articles, Congressional hearings and policy studies to provide a background of the general issues that have dominated the capital gains debate throughout the past decade. Having focused on the debate and outlined the positions on both sides of the issue, the paper then moves towards a solution to the problem of unfair taxation of capital gains; indexing for inflation. Taxpayers would only pay tax on gains due to the investment itself. The arguments for and against indexing are presented, and then the focus turns to two countries that index capital gains already, Great Britain and Chile. The paper closes with a plan to index capital gains that creates a fairer tax code that encourages taxpayers to invest and move capital around more efficiently. The issues discussed in this paper will be in the news throughout the next few months, as Congress tries to pass a tax package that includes a capital gains cut. The goal of this paper is to propose an alternative to those plans that have been debated throughout the past decade, and move forward to a different, fairer way of taxing capital gains.