Capital gains tax

“ So if you are a wealthy person and you earn money from dividends—I believe the overwhelming majority of those capital gains accrue to the top 1 percent—you are going to be paying a tax on that income of 15 percent, which is less than you pay if you are a fireman, a police officer, a teacher, or a nurse. So what we are doing there is extending not only the personal income tax breaks for the very rich but a host of other taxes as well. ”

“ If capital deductions and capital losses were in excess of the capital gain, or if there were capital losses in the absence of capital gain, such losses were deductible as ordinary losses. We are told that the opportunity to minimize taxes by the practice of taking capital losses to offset ordinary net income constituted a particularly serious problem after the Act of 1921, which reduced the rate of tax on capital net gains. ”

“ To say that there is no sale because there is no risk-shifting and that there is no risk-shifting because the price to be paid is payable only from the income produced by the business sold, is very little different from saying that because business earnings are usually taxable as ordinary income, they are subject to the same tax when paid over as the purchase price of property. This argument has rationality but it places an unwarranted construction on the term 'sale,' is contrary to the policy of the capital gains provisions of the Internal Revenue Code, and has no support in the cases. ”

“ But this specification is not enough to restrict the effect of the general provisions of these acts which impose a tax on the income, including capital gains, of taxpayers. The use of the word cost does not preclude the computation and assessment of the taxable gains on the basis of the value of property, rather than its cost, where there is no purchase by the taxpayer, and thus no cost at the controlling date. ”

“ If a person has an asset, say, a home or small business or stock, they don't want to sell that asset when they are going to have to pay 30 percent or 25 percent in taxes on that sale because they don't want to have to pay all those taxes for that asset they spent their whole life building up, trying to make ends meet, trying to create a nest egg for themselves. When you put a fair capital gains rate on that sale, which is today 15 percent--which is the fair rate which was put into place by President Bush's proposals--then people are willing to go out and sell that asset. ”

“ It means those people who make their living off of their investments—if you invest, if you earn dividends—will continue to pay a substantially lower tax rate than the average American person in the working class, middle class—our firemen, our teachers, our nurses. Those people are not going to pay 15 percent. They pay a higher rate than folks who have capital gains and dividends. ”

“ There, the salvage value, if anything, is ordinarily nominal. Furthermore, the 'profits' of the taxpayers here are capital gains and incur no more than a 25% tax rate. The depreciation, however, is deducted from ordinary income. By so translating the statute and the regulations, the taxpayers are able, through the deduction of this depreciation from ordinary income, to convert the inflated amounts from income taxable at ordinary rates to that taxable at the substantially lower capital gains rates. This, we believe, was not in the design of Congress. ”

“ We treat the words in § 117 (b) , which state that only 50% of certain recognized capital gains 'shall be taken into account in computing * * * net income,' as applying to the entire computation of the tax, beginning with the statement of the gross income of the trust and concluding with its taxable net income. [10] We treat that percentage of capital gains which expressly is not to be taken into account in computing taxable net income as also excluded from statutory gross income. ”

“ Making tax relief permanent includes extending the tax cuts on dividends and capital gains. These tax cuts have been vital to our economic growth. By lowering the cost of capital, this tax relief has given businesses an incentive to invest and expand, and that has helped create jobs and opportunity. ”

“ Congress intended that profits and losses arising from the everyday operation of a business be considered as ordinary income or loss rather than capital gain or loss. The preferential treatment provided by § 117 applies to transactions in property which are not the normal source of business income. It was intended 'to relieve the taxpayer from * * * excessive tax burdens on gains resulting from a conversion of capital investments, and to remove the deterrent effect of those burdens on such conversions.' Burnet v. ”

“ There is nothing novel in such a division of the statutory net income into parts for the purpose of applying different rates of tax, as witness the provisions fixing the rates on those portions of the entire net income attributable to dividends, earned income, interest on United States obligations, and gains from the sale of mines, and allowing credits for dependents. [7]
The plain requirements of section 101 are that in ascertaining ordinary net income there shall be excluded from the computation only items of capital gain, capital loss, and capital deductions. ”

“ When they sell that asset, what happens? Two things which are very good for the Federal Government happen. No. 1, capital gains occur so we get revenues; otherwise, we would not get those revenues because people would just sit on those assets; they are not going to sell them and pay the high tax rate. When you have a fair tax rate, they sell them, the Federal Government gets the revenues, and the second thing that happens is they take that new money they have from the sale of that asset and reinvest it. By human nature, they reinvest it in something that is more productive. ”

“ An includable element of the 'invested capital' is the 'accumulated earnings and profits as of the beginning of such taxable year.' § 718. It thus appears that by this method Congress intended, with minor exceptions not here relevant, to impose the excess profits tax on all annual net income in excess of 8% of a corporation's working capital, including its accumulated profits. ”

“ Respecting other moneyed capital, trust companies, by § 188, are subjected to an annual franchise tax 'equal to 1 per centum, on the amount of its capital stock, surplus, and undivided profits.' The practical burden of such a tax (which of course falls eventually upon the stockholder) is presumably not materially different from the burden of a tax at the same rate, imposed upon the individual stockholder on a valuation of his shares, arrived at by taking into consideration the same elements of capital stock, surplus, and undivided profits. ”

“ Sec. 102. 5 percent reduction in individual income tax rates. Sec. 103. Repeal of alternative minimum tax on individuals. Sec. 104. Reduction in corporate marginal income tax rates. Subtitle B—Reduction of Income Taxes on Capital Assets Sec. 111. Indexing of certain assets for purposes of determining gain or loss. Sec. 112. Reduced capital gains rate for corporations. Subtitle C—Other Provisions Related to Businesses Sec. 121. Repeal of certain limitations on the expensing of section 179 property. ”

“ To provide that taxation shall fall entirely on income, and not at all on capital, is beyond the power of any system of fiscal arrangements. There is no tax which is not partly paid from what would otherwise have been saved; no tax, the amount of which, if remitted, would be wholly employed in increased expenditure, and no part whatever laid by as an addition to capital. All taxes, therefore, are in some sense partly paid out of capital; and in a poor country it is impossible to impose any tax which will not impede the increase of the national wealth. ”

“ Nothing could more clearly show that to tax a stock dividend is to tax a capital increase, and not income, than this demonstration that in the nature of things it requires conversion of capital in order to pay the tax. ”

“ Moreover, the supposition of a progressive tax based either on product or on capital is perfectly absurd. How can we imagine the same product paying a duty of ten per cent. at the store of one dealer and a duty of but five at another's? How are estates already encumbered with mortgages and which change owners every day, how is a capital formed by joint investment or by the fortune of a single individual, to be distinguished upon the official register, and taxed, not in the ratio of their value or rent, but in the ratio of the fortune or presumed profits of the proprietor? ”

“ Congress did not intend, however, when it refused to tax the newly acquired shares as income in praesenti to exclude them from taxation in futuro if disposed of at a profit. A tax upon a gainful use either of capital or of income, when the gain is fully realized, is a true tax upon income and not a capital levy. ”

“ In the case of a 'capital net gain', there is to be levied, at the election of the taxpayer, and in lieu of all other taxes imposed by the income tax title, a tax of 12 1/2 per centum of the capital net gain, to be added to the tax computed upon the basis of the 'ordinary net income'. ”

“ If paid at once it affects their capital; if paid annually it affects their income. But here neither the capital nor the income is affected. The capital is not affected because the payment is an annual one. The income is not affected because this annual payment does not belong to the company, but is received by it, accounted for by it, and paid into the State treasury. Affecting, then, neither the capital nor the income of the stockholders, it comes within no known definition of a bonus. It is a tax, and nothing but a tax; a capitation tax, in the recognized meaning of the term. ”

“ This Court has long held that the term 'capital asset' is to be construed narrowly in accordance with the purpose of Congress to afford capital-gains treatment only in situations typically involving the realization of appreciation in value accrued over a substantial period of time, and thus to ameliorate the hardship of taxation of the entire gain in one year. ”

“ The position of the government is sound. A corporation cannot claim to have accumulated any net income in any year until provision is made for taxes accrued, based on net income for the same year.
The reasonableness of the regulation is further shown by the fact that 'invested capital' was merely a legislative definition of an element in the formula prescribed for computation of excess profits tax. Congress might have expressly declared that taxes should be excluded from invested capital. ”

“ Sections 215 and 216 of the National Industrial Recovery Act impose interrelated taxes on domestic corporations, namely an annual capital stock tax and an annual tax on profits in excess of 12 1/2 per cent of the capital stock, calculated on the basis of the value of the capital stock as fixed by the corporation's return for the first year in which the tax is imposed. ”

“ If we impose a tax upon manufactures or imported goods, the manufacturer or importer will charge it in a higher price to the jobber, the jobber to the retailer, and the retailer to the consumer. Now, the consumer, on whom the tax thus ultimately falls, must not only pay the amount of the tax, but also a profit on this amount to every one who has thus advanced it—for profit on the capital he has advanced in paying taxes is as much required by each dealer as profit on the capital he has advanced in paying for goods. ”

“ The advantages that seem to be brought out most clearly are: First, taxation. The organization tax is considerably lower than that of most of the States, while the annual tax is fixed upon the amount of capital paid in, so that it is an absolutely certain quantity and can be determined by anyone, thus leaving no opportunity for corruption on the part of either the corporation itself or of State officials. The rate of the tax is moderate, and decreases as the amount of capital increases. ”

“ Finally, to all these annual and extra taxes, levied on the probable or certain income derived from invested or floating capital, the exchequer adds an eventual tax on capital itself, consisting of the mutation tax, assessed on property every time it changes hands through gift, inheritance, or by contract, obtaining its title under free donation or by sale, and which tax, aggravated by the timbre, is enormous, since, in most cases, it takes five, seven, nine, and up to ten and one-half per cent, on the capital transmitted. ”

“ It is the foundation of its credit in the business community. The legislature well knew the peculiar system under which these institutions were incorporated, and the working of it; and, when providing for a tax on their capital at a valuation, they could not but have intended a tax upon the property in which the capital had been invested. We have seen that such is the practical effect of the tax, and we think it would be doing injustice to the intelligence of the legislature to hold that such was not their intent in the enactment of the law. ”

“ The real effect of a tax on profits is to make the country possess at any given period, a smaller capital and a smaller aggregate production, and to make the stationary state be attained earlier, and with a smaller sum of national wealth. It is possible that a tax on profits might even diminish the existing capital of the country. If the rate of profit is already at the practical minimum, that is, at the point at which all that portion of the annual increment which would tend to reduce profits is carried off either by exportation or by speculation ”