Question

As a political consultant for an aspiring politician, you have been hired to evaluate the following statements that pertain to capital gains and losses. Evaluate the statement and provide at least a one-paragraph explanation of each statement. As you prepare your answer, consider the fact that the aspiring politician does not have much knowledge about taxation.

a. The tax on capital gains is considered a voluntary tax.

b. High-income taxpayers receive the most benefit from preferential treatment for capital gains.

Answer 1

a. A taxpayer has the ability to identify the time of asset sales; that is, a taxpayer has the ability to control the
tax on capital gains. Usually, a taxpayer maintains his capital assets and awaits more
beneficial tax treatment. A taxpayer might avoid the tax on the capital gain by making gifts to his children. The
tax on capital gains is somewhat a voluntary tax.
b.
It is more probable for a high-income taxpayer to have capital gain earnings. A high-income taxpayer is subject to high tax rates on his earnings. The long-term capital gain is taxed at a rather
low rate, 15%, or 20% at most. It is some sort of tax benefit to all taxpayers. By the records, most long-lasting capital gain tax is paid by taxpayers of very high
income. And many lower-income taxpayers do not have any taxes on capital gains. This is why it is said that high-income taxpayers get the most benefit from preferential treatment for capital gains.