I have often been troubled by the way in which stock investors tend to rationalize the low percentage of the capital gains tax by claiming that, as owners of stock, they are job creators. It seems to me that this is a rather disingenuous claim by stock investors. It seems to me that stock owners do not, in general, contribute to the bottom line, or ability to create jobs, of the companies they own stock in. My understanding is that the purchase of stock does not provide capital for the company to use to create jobs except in a small number of cases; in general, the money that is used to purchase stock in a company does not go to the company itself, but to the seller of the stock, which is usually another individual or institutional stock holder who is selling the stock. The exceptions to this are when there are new stock offerings, such as IPOs, follow-on stock offerings, etc., where the company issues new stock certificates and receives the proceeds from the sale itself; in these cases the money is available for investment in job creation activities, though is not necessarily used for that purpose (it may be used for acquisitions). The normal stock purchase, which is generally between a current and a prospective stock holder, contributes only nominally to the ability of a company to raise capital by potentially elevating the price of the stock so that if and when the company issues stock in a follow-on stock offering, the value of the stocks issued is higher, so the amount of capital raised in such an offering would be higher. And short selling actually reduces the potential for raising capital. It would seem to me that the normal purchase of stock is, in a very real sense, not an investment in the company that the stock purchase is for, but rather is an investment in the stock purchasers portfolio; the stock purchaser is buying the stock in the hopes that they will either see an appreciation in the stock price or receive dividends from the company, neither of which actually helps the company substantively, except as described above when new stock issues are done. Applying this analysis, there is no real justification for a capital gains tax rate on normal stock transactions because the normal stock transactions do not really benefit the society as a whole, so should not be considered more appropriate to encourage via tax policy than earning wages, which are taxed at a substantially higher rate than capital gains.
Posted on: Fri, 03 Oct 2014 18:00:14 +0000
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