A Saner Capital Gains Tax by Tom Tierney
I hate taxes, but doesn’t everybody? It’s April, 2010 and the current federal capital gains tax in the U.S.
is 15% but will most likely go up when tax rate cuts expire in 2011.
What is a fair capital gains tax? I won’t argue we shouldn’t have some capital gains tax, I’ll save that for
someone else. If we have taxes on gains I do believe that 20% or 1/5 of that gain is certainly the
maximum that should be taken. I’d like to see a tax that picks a compromise for those who believe
there should be a tax but also reward those who invest in American enterprises. My thoughts:
1. One year gains: 20% tax (max) on gain; ideally that number will go lower in the future
2. After holding two years: 15% tax
3. After holding three years: 10%
4. After four years: 5%
5. After holding five years or more: 0%
Why is this declining tax rate a good thing? A tax rate that rewards long term asset ownership
encourages actual investment in American business and assets and rewards those long term investors.
On the other hand, whether you are “flipping” homes or “flipping” stocks, you pay a higher tax than
someone who buys an asset or invests in a business, makes a longer term commitment to it, and more
importantly, a longer term commitment to the American economy.
Business “investment” is supported. Venture capitalists, angel investors and other early stage business
investors have more incentives to invest long term in new startup companies. These new companies
provide the new jobs that create growth in the U.S. economy. Individual business owners see more long
term value in starting and growing a business that may ultimately allow them to exit to a retirement that
doesn’t rely in part, or whole, on social security. Anyone on Wall Street or who invests in public
companies will be incentivized to invest, not trade, in U.S. businesses.
We all know it will take much pain and effort to get the tax system, and the U.S. government spending
to a point where deficits and the national debt are under better control. Can’t we at least take some
measured steps, with a compromise that helps progress to these goals and, just makes sense?
Tom Tierney lives in Encinitas, CA and is a member of Tech Coast Angels (www.techcoastangels.com),
an early stage business investing organization - a network of business angel investors.