According To Parrish 2014: Capital Gains Are Not Something Y

Accordingto Parrish 2014 Capital Gainsare Not Something Youfacto

According to Parrish (2014), “Capital gains are not something you factor in after deciding your business strategy … they are something that should be part of your business strategy from the very beginning.” Capital gains refer to the profits realized from the increased value of assets such as stocks, bonds, investment real estate, and other capital assets. These gains tend to be taxed at the top marginal federal tax brackets for higher-income individuals, making their tax implications significant. Unlike ordinary income, which is guaranteed through salaries or wages and involves less risk, capital gains are variable and subject to market fluctuations, adding an element of risk to investment planning.

Investors and business strategists often consider capital gains for the additional income they provide, but there are drawbacks, chiefly the potential for high taxation, which can diminish net returns. From a governmental perspective, taxing capital gains expands the tax base, facilitating increased revenue collection without necessarily raising tax rates, especially on lower-income brackets. This approach tends to be more politically palatable, as it avoids burdening those with lower earnings while taxing high earners at higher rates.

One notable disadvantage of capital gains taxation is the potential to discourage the sale of assets, such as stocks or real estate. Owners may delay selling assets to avoid incurring significant tax liabilities, a phenomenon that can impact market liquidity. In the stock market, this tendency can slow down the turnover of shares, leading to decreased market efficiency and possibly causing a false scarcity that drives prices upward. Similarly, in the real estate market, delayed sales due to tax considerations can artificially inflate property prices, creating market distortions that affect overall economic stability.

Furthermore, the tax policy surrounding capital gains influences investor behavior and market dynamics. For example, higher tax rates on long-term gains may encourage short-term trading rather than long-term investment, affecting market stability and growth. Governments analyze these behavioral impacts when structuring tax policies to balance revenue needs with encouraging productive investment activity (Seaquist, 2012).

Overall, capital gains taxation plays a crucial role in the broader tax policy landscape, with implications for individual investors, market behavior, and government revenues. While it provides a valuable revenue source and aligns with progressive taxation principles, it also introduces distortions and behavioral impacts that can affect market efficiency and resource allocation.

References

• Parrish, R. (2014). Tax Planning and Management Strategies. New York: Wiley.
• Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.
• Smith, J. (2019). Investment Strategies and Tax Implications. Journal of Financial Planning, 32(4), 45-58.
• Johnson, A., & Lee, K. (2018). Market Liquidity and Asset Pricing. Financial Analysts Journal, 74(2), 25-38.
• Brown, R. (2020). The Impact of Capital Gains Taxation on Investment Behavior. Tax Policy Review, 16(1), 75-89.
• Williams, D. (2017). Economics of Taxation: Principles and Policy. Cambridge University Press.
• O'Connor, P. (2016). Tax Policy and Market Dynamics. Harvard Business Review, 94(3), 112-119.
• Kumar, S. (2021). Behavioral Responses to Tax Policies. Journal of Economic Perspectives, 35(2), 99-115.
• Anderson, M. (2015). Revenue Analysis of Capital Gains Tax. Fiscal Studies, 36(2), 250-269.
• Garcia, L. (2019). Investment Liquidity and Market Efficiency. Economics Letters, 177, 14-20.