We "did well" on the stock market last year. We "made a lot of money". Now the IRS say that because we bought stocks for one price and sold them for a higher price, that's income on which we owe taxes.
Ha.
Ha, ha.
Ha, ha, ha.
Anybody who's been tracking the market knows that it's substantially below where it was last year. I didn't in fact make any income from the stocks, I rolled it over into different investments ... investments which lost value.
But even though the income that the IRS says I "made" and which I never accessed, is now gone, I still have to pay taxes. The IRS considers that you have income whenever you have access to the money. Well, that's a great theory, but it simply defies logic. If I have a key to your house, the IRS considers that I've entered your house, even though I may never ever have been to your city. If you wrote me a check, and I never cashed it, the IRS considers that to be income, simply because I could have cashed it. And yet, I didn't, and the money to pay the non-income taxes has to come from somewhere else.
So, you might say "well, sorry, Russ, that's the rules; sucks to be you." Maybe. And yet as an economist I need to point out that while this rule gains the government money, it makes our society poorer. Since I never got the income they claim I got, I have to liquidate some other investment. I have to consume my capital. Whenever you engage in capital consumption, you make not just you worse off, you make everyone worse off because one and only one thing makes workers more productive and enables higher pay for workers: capital.
Yet again, government actions hurt citizens.
posted at: 04:35 | path: /economics | permanent link to this entry