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1 Gerald Prante, As Presidential Candidates Target Investment Income for Higher Taxes, Which States Stand to Lose the Most 1 (2007)

handle is hein.taxfoundation/ffjaxz0001 and id is 1 raw text is: FOUNDATION July 16, 2007 As Presidential Candidates Target Investment Income for Higher Taxes, Which States Stand to Lose the Most? by Gerald Prante Fiscal Fact No. 90 The recent Warren Buffett-Hillary Clinton forum featured the billionaire's oft-repeated theme that the U.S. income tax code treats investment income too generously compared to wage income. This Fiscal Fact describes the different types of investment income, how they're taxed and which states they're most commonly earned in. Two Types of Investment Income in the Spotlight: Capital Gains and Dividends When people save money-whether by investing in stock directly, through a 401(k) or by simply putting it in the bank-the earnings generated by those savings are called investment income and taxed separately from wages. When a person sells stock, the income is called a capital gain (or loss). If a person invests in several companies' stock, some will probably pay a regular dividend, and those dividend checks are also investment income. Capital Gains: Why Has the Rate Historically Been Lower Than the Wage Tax? If you profit from the sale of your coin collection or your house or some stock you invested in, that's a capital gain. The federal government has almost always taxed those gains at a lower tax rate than it has applied to wages. Why? The increased value of any asset is partly due to inflation, but the tax law doesn't adjust for inflation. The lower tax rate makes up for that but in a very rough, approximate way. Because people can choose when to sell their assets, capital gains are much more sensitive to tax rates than wages. Facing higher wage taxes, people must continue working, but in the face of higher capital gains taxes, people can cling to their assets. This damages the economy and disappoints hopes for higher tax revenue. Because people invest in the stock of specific companies, and because the stock's gain is reduced by the corporate income tax, tax experts usually add the corporate

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