April 18, 2024

It is an odd term, "Capital Gains". It both describes the fixed-game of capital operating in a capitalist system and a type of profit from speculation that pre-dates that system. It is one of the oldest forms of wealth accumulation.

Classical economics outlines that most capital gains are transfers of wealth. There are those who make money from facilitating the transfer of wealth and that might be value creating, but the capital gains from speculation is quite simply a type of theft.

A capital gain is profit made from "buying cheap and selling dear".

Much like mercantilism, wealth looks to be grown, but it is simply moving wealth from one place (person) to another. The process of how wealth is transferred using an "asset" hides the transfer bit. The transfer is obfuscated because the "value" that was created elsewhere cannot be seen/measured directly in the asset being traded.

Capital gains is not from rent, or an ownership right. It is not the direct accumulation of surplus value from production (i.e., underpaying workers).

It is mostly to do with gains from real estate and financial assets in an open trading market.

The way we describe capital gains in tax system in Western capitalist societies is as a gain from selling an asset. You sell it for more than you bought it for.

Of course, orthodox neoclassical economics does not ask the question of where that supposed gain in wealth came from. Or, why the person who just happened to own the asset should benefit from that gain.

As such capital gain is looked at as a type of income. Many say that it should be just taxed as income. So, why isn't it?

The answer is that capital gains is fundamental to the financial and real estate services sector.

Speculation on financial assets and land are also somewhat essential to the creation of financial liquidity in a capitalist society. People put hard earned money into a financial system, it is taken from them, and then re-invested in other speculation resulting in more centralization of wealth in the financial market. Clever tricks are used to make money invested look like more money than it is (through the creation of debts that cannot be repaid) and you get "gains" on that "capital".

And, capital gains is something that the affluent working class thinks they get a piece of along with capital, even if it is tiny in comparison. As such, tax laws tend to be written to benefit those who make capital gains over other kinds of income.

The simple question to ask is if someone's land/house has increased in value without them putting any effort to make that asset more valuable, why does that person think that they should get that increased value? Especially when it is clear that the value creation has come from somewhere else?

When it comes to financial services speculation, it is similar. Why does the simple act of buying a share and then selling that share when the market goes up give you right to value increases? You did not create that value and you did not even contribute to the paying for the capital that created the value. You simply bet on the traded value increasing.

Capital gains is akin to winnings (or losing) in gambling. The only difference is the financial capital game never ends, so while individuals may gain and lose one night, the House never has to pay its debts and neither do some players (corporations) continue to operate for decades accumulating (other peoples') wealth.