Investments are a gamble. We invest in companies to get a return in the form of interest. Companies use the money in the same way they would a loan to grow and thus they create more jobs. The interest we get in return for our gamble allows us to acquire another source of income. Yet the money we put into the market and what we get out of our gamble is taxed. Here I will explain why investments should not be taxed.
First reason: As stated above, investments are a gamble. A successful business will earn people a profit, while an unsuccessful one will cause you to loose your money. However, all investing plays an essential service in all countries economies. It has become a driver of the market such that investments can even get countries out of recessions and depressions. For instance four of
The second: Investments come in many forms. However I will separate them into two types for this article, those that are double taxed and those that are tax exempt. The tax exempt ones are things like a 401K where you collect at retirement. Here you get money taken out of your check before taxes and then taxed when you cash it out. Usually this stuff is used for retirement and if you have already read Issue 263 Don't tax seniors, you will know that taxing the retirement of any retiree is only going to hurt them. However, the other form of investment (double tax) is taxed first. So your paycheck is taxed and then after you used your already taxed money to buy stock and invest you get taxed again on whatever you cash out. So in this instance you are being taxed twice. The first is on your income and then again on what interest you earned upon getting money off your investment. Double taxation is the only way to describe this theft. By taxing people twice you inhibit their ability to both spend and earn money. It basically makes them squeamish about buying even the essentials. Also, it inhibits people from going after money making opportunities like investments as they feel pressured by the additional taxation.
The third: It frees up the job market. How you might ask? Simply put, it takes people out of the workforce which allows for more job opportunities for everyone else. Basically, those who get rich off stocks do not have to have a job as their "new" job now is investing which allows business growth. Meanwhile, a job they would have occupied based on their skills is now open for someone else to take. Investing also allows some people to retire early and again this frees up jobs as their former employer will need someone to take their place. Social Security was partly invented to get the seniors and people who could retire early out of the job market so that lower skilled labor can take their place while higher skilled labor can move up and earn more income. So we should not care how much an individual makes earning stocks, for the fact is that we should be thanking them for advancing our economy and getting out of the job market to make way for everyone else.
Conclusion: So we have three main reasons to not tax investments. The first, that investing grows the economy and as such taxation of investments hinders economic growth and recovery. Two is that some individuals are taxed twice, once on their income and then again on their investments, which is clearly not fair to the individuals being taxed. And finally the third reason is that it frees up the job market by getting people out of the labor pool which allows other job seekers a chance to work and earn a living (i.e. it can help alleviate poverty in some cases). So I say let us not tax this economic tool that drives our economy. The advantages are clear, so quit taxing investments.
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