No, the capital gains tax is not “taxing the same income twice”

Whenever the subject of increasing the capital gains tax from its current 15% rate comes up, you’ll invariably hear opponents breathlessly crying, “but that’s taxing the same income twice! Capital gains is double dipping!”

It’s a great line, and has proven powerful in debates.  The only problem is, it’s 100% bullshit.

The capital gains tax is NOT a tax on income already taxed, it’s a tax on the ADDITIONAL income you earn by investing that income.  For example:

  • You earn $100,000.  Yay!
  • You are taxed 35% on it.  Boo!
  • You invest the remaining $65,000, you do well, and you double it!  Yay!
  • You now have $130,000 in the bank.  You are taxed 15% for the capital gains, i.e., the $65,000 you made.  You pay $9,750.

So again, to be clear, you are ONLY taxed on the additional money you made.   There is no double dipping.  It’s no different from getting taxed in one paycheck, and then getting taxed the next week, for a completely new paycheck.  Except in this case, the second round of taxes comes at a 15% rate, which is pretty sweet, compared to the 35% you paid earlier.

So, to sum, you made a total of $165,000, and paid $44,750, for an overall rate of 27%.

Oh, and to all those still claiming this is double dipping, riddle me this:  If it’s double dipping on the same income, how is it possible that the overall rate of taxation DROPS when you lump on the capital gains?

Look, there are all kinds of arguments for setting the capital gains tax at different levels.  And there are all kinds of reasons to hate taxes.  Nobody WANTS to pay them.  But this argument being raised about double dipping?   It’s a heaving pile of grade A bullshit.

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About John Hlinko

John Hlinko is a frequent political pundit on TV, and the founder of Left Action, a network of over 1 million activists. He is also the author of, "Share, Retweet, Repeat: Get Your Message Read and Spread," ranked by Amazon.com as the # 1 "hot new release" in web marketing in early 2012. Follow him on Twitter and Facebook
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5 Responses to No, the capital gains tax is not “taxing the same income twice”

  1. R. Dove says:

    The charge of double taxation is usually applied to stock dividends. The charge is true, as corporations pay dividends from after-tax earnings.

    However, double taxation is not unusual. For instance, payroll taxes and income taxes are both applied to the same income. Also, sales taxes are paid on after-tax income when it is spent. Double taxation is common, and not new.

  2. Ted Govostis says:

    Devil’s advocate argument for a moment, followed by why they are still idiots for their claim.

    The “Double Dipping” argument comes from “Since dividends are corporate profits, which were taxed when the corporation made them, we shouldn’t have to pay taxes again when we get paid our dividends”

    Of course, by that logic, since I paid taxes on my income when I got paid, when I hire a plumber, no more income taxes should be paid by him, since the money I give him has already been taxed.

    What these people are failing to grasp is that the corporation they own part of is a separate and distinct legal entity from themselves. This is why when the corporation fails, they don’t have to take on the company debts. Just like me paying the plumber, the money is being paid from one entity to another, and therefore is new income. If they don’t like that set up, don’t form corporations. Privately own your business, pay everything made as personal income, and assume all liabilities while you are at it.

    But that just might require showing some of that “personal responsibility” we hear the right crowing about all of the time.

  3. poop mcgee says:

    15% only applies to long capital gains. Short gains are sometimes hit as hard as 40% and that is total bs which hurts the middle class more than anyone else, since the middle class is basically the entry level class where people have both enough education and income to invest for gains, so if a regular Joe in the middle class wants to bust his butt learning about the market and taking the risks as a day or swing trader, all his gains are hit really hard, he is told he should instead get the lower tax rate by only liquidating his long holdings, which keeps him from ever reaping the sweat of his own brow so to speak, this is done to make sure the wealthy elites can’t really be challenged by smart lower class traders, as when you wait to profit on the long game constantly, you end up dead or in a nursing home before you’ve got your fortune.

    It is just another part of the crony capitalist system which benefits both government and the one percent while keeping the rest of us in mediocrity.

  4. Tox Chambley says:

    I love when people write stuff so adamantly…when they have no clue what they are talking about. lol The issue is that the income is being taxed at the corporate level, then taxed again when the income is being transferred to the investor. Might want to understand the issue before making a fool of yourself.

  5. Bingo says:

    If there is a big market swing or two you end up paying the capital gains distributions and other taxes on the appreciation in dollar amount on the way up every time so you could be triple taxed by the time you end up selling and paying on the unrealized gain some of which you obviously paid already and would be partly to blame for NAV rise.

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