A long running tax policy fight has been over whether \"capital gains\" income s
ID: 2556822 • Letter: A
Question
A long running tax policy fight has been over whether "capital gains" income should be taxed at lower rates than other types of income (e.g. wages, interest).
Which, if any, of the following statements about the tax policy reasons offered to justify a preferential tax rate (i.e. lower rate than for other types of income) for capital gains is false?
Capital gain tends to build over time but is taxed only in the year of sale. Therefore, it tends to be taxed at a higher marginal rate than would have been likely if the gain had been recognized each year as it built.
Many assets increase in price due to inflation rather than a true increase in value. Thus, these increases should be taxed at lower rates.
A preferential rate encourages people to hold on to assets longer than they want so as to avoid paying taxes on the gains.
None of the reasons above offered to justify a preferential tax rate for capital gains are false.
Capital gain tends to build over time but is taxed only in the year of sale. Therefore, it tends to be taxed at a higher marginal rate than would have been likely if the gain had been recognized each year as it built.
Many assets increase in price due to inflation rather than a true increase in value. Thus, these increases should be taxed at lower rates.
A preferential rate encourages people to hold on to assets longer than they want so as to avoid paying taxes on the gains.
None of the reasons above offered to justify a preferential tax rate for capital gains are false.
Explanation / Answer
As per my knowledge I would say, Capital Gain should be charged at Preferential tax rate only. Because people hold asset for their investment & not for sale. usually people sale their asset only when they need cash. So, government should give benefit to those people bacause they are investing money.
A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis.
Basis is an asset’s purchase price, plus commissions and the cost of improvements, minus depreciation. Similarly, a capital loss occurs when an asset is sold for less than its basis.
Gains and losses (like other forms of capital income and expense) are all measured in nominal terms—that is, not adjusted for inflation.
Conclusion Option 4:-
None of the reasons above offered to justify a preferential tax rate for capital gains are false.
Conclusion Option 4:-
None of the reasons above offered to justify a preferential tax rate for capital gains are false.
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