If you already think it’s hard to beat the market, imagine how much harder it will be to invest in stocks profitably if the tax burden goes up.
Unfortunately, that’s what 9 in 10 Americans apparently want.
WalletHub released its 2014 Tax Fairness Survey, which “assesses opinions on tax code complexity, income tax structure, and the fairness of taxes on everything from investment income and corporations to alcohol and tobacco,” according to a press release.
In the details of the survey, almost 58% said wages and investment income should be taxed equally and 33% said investment taxes should be even higher than the rate at which wages are taxed.
Right now, for most investors, long-term capital gains are taxed at between 15% and 20%. That can be as little as half the effective rate on your income — though, of course, every family and income source has its own particular tax issues and this isn’t universally true.
But whether the taxes are lower or higher on income is irrelevant without asking the more important question … which is, “should everything be taxed the same?”
Investment income is treated differently in part because investment is crucial to economic growth. Whether you’re starting your own business off the ground or recapitalizing a large company in a secondary stock offering, the bottom line is that profits from investments are always a reflection of growth at the source of that investment — which often includes an American business with American workers.
Here’s where the WalletHub survey starts to come off the rails, though, with 61% of Americans viewing tax “fairness” and 21% viewing tax “equality” as more important than what’s best for the American economy at large, which garnered a mere 18% of votes as the top priority among these.
Anyone who took a class on economics or has read anything about finance in the past few years should know that one of the most effective and sustainable ways to increase tax revenue is simply to increase economic growth — not tax rates.
As in, a 20% tax on $1 billion generates $200 million in revenue while a 30% tax on $500 million only creates $150 million in revenue.
There is assuredly some level of “fairness” that is necessary, and I am outraged as much as anyone else that there are billionaires and Fortune 500 companies that avoid paying a penny in taxes thanks to complicated loopholes and tax avoidance strategies.
But there are ways to address those IRS shortcomings without throwing economic growth out the window.
Blanket statements like “investment taxes should be higher than taxes on wages” are simple solutions for the folks who want to punish tax avoiders and level the playing field … but they are also dangerous ones. The fact that so few respondents care about economic growth in this survey is proof positive of that.
Check out the full 2014 Tax Fairness Survey for more details.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via@JeffReevesIP.