Capital gains tax
What is it?
A tax on the income people make from selling assets. If, for instance, someone buys a house for $500,000 and sells it for $600,000 (without having made any improvements to it), their profit is $100,000. Under a capital gains tax, they would, once the sale has gone through, pay tax on that $100,000, at standard income tax rates.
What is the problem that this change would seek to address?
Selling assets in this way generates income, just like wages and salaries are income, but it is not taxed (except in rare circumstances, for instance under the brightline test). This creates a fundamental unfairness, and deprives the government of revenue it would otherwise enjoy.
What are the advantages?
It taxes people when they have the resources to pay, and it is conceptually simple to explain – effectively, an extension of the current tax system. Every other developed country has a capital gains tax in some form.
What are the disadvantages?
Because the tax applies only on assets bought after the tax comes into effect (or, alternatively, only the increases in an asset’s value registered after a special ‘valuation day’), it takes a long time to generate its full revenue.
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