I recently read an article on Advanced Personal Finance and though I have been reading him for quite a while and I like a lot of his articles, I wanted to pull my hair our when I read his article on Phantom Capital Gains. For a quick background on what he was talking about I will paste his first paragraph as he does a good job of explaining it:

Phantom capital gains
The term ‘phantom capital gains’ refers to the fact that when you sell appreciated assets (e.g. stocks), you pay capital gains tax based on your basis (the price you paid for them whenever you bought them). Since then inflation has likely eroded the buying power of the dollar. So now that you’re selling them, the cash proceeds you receive are worth less in ‘real’ terms. You must pay taxes on any gains, regardless of that gain’s real buying power. With me so far?

Rudy Giuliani and other anti-tax advocates think people should not be taxed on the full nominal amount of those capital gains. In Giuliani’s plan, the capital gains that are subject to taxation would be indexed for inflation.

Great explanation, I love it and I actually did not know that was part of Giuliana’s plan. So I read on.

…So who would benefit from an indexing of capital gains to inflation? Drum roll please. Not surprisingly, the wealthy will be the overwhelming winners if a plan like Giuliani’s becomes law. Doing something like this is the opposite of progress, to me. It increases rather than decreases wealth inequality.”

Uh oh. Though I find it admirable that APF personally wants to help people with less invested in the market than himself, I find it immoral to take more away from people who are planning for the future and have taken control of their financial life.

More and more people are realizing that social security is not something to bank on and are investing in their future themselves. Aside from that, one of the great things about America is that generating wealth is available to anyone, its not just the rich investing in the stock market anymore. Though you can debate the morality of the top 1% holding so much wealth, it makes no sense to do something just to punish them that might also hurt the middle class. Those that take the time to manage their finances WILL come out ahead. And if you are reading this right now, that is YOU. Remember there is nothing immoral about increasing your wealth, eliminating your debt, and taking advantage of the country you live in.

The long short of it is: capital gains is your enemy here…and not just for those reasons.

Reducing Capital Gains taxes would bolster the economy by encouraging invest­ment in promising enterprises and by making div­idend payments to stockholders more attractive to companies. Dividend payouts allow companies to reward shareholders in a way other than just trying to focus on increasing the stock price.

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