What is at the heart of President Obama’s complaint about the taxes Warren Buffett and other rich people pay, or don’t pay? What the president is really complaining about is that the tax rate on capital gains is too low.
But there is a more basic question to be asked: Why tax capital gains at all?
Did you know that the term “capital gains” does not even appear in the official income accounts for the U.S. economy? That’s right. No matter how high stock prices climb, they do not affect the official reckoning of national income one iota.
“Capital losses” aren’t included either.
When stock prices soar, stock owners are wealthier — at least they feel wealthier. When stock prices plunge, owners of stocks feel less wealthy. But none of these ups and downs have any bearing whatsoever on the official calculation of the income for the economy as a whole.
So here is the policy question: If we are going to have an income tax, should we tax only income? Or should we tax activities, events and transactions that are not counted as part of our national income?