Editor, I worked hard and saved all that I could during my working years. If something needed done and I could do, it I did — from reroofing the house to replacing the brakes on my vehicles. I already have paid income taxes on the money that I’ve saved, but the fair tax people would have me pay “income” tax on it again if I buy a new set of golf clubs or a boat or anything else. There is nothing fair about that.
The biggest problem with the current tax code is the capital gains tax. Here is the problem: I bought a home for $30,000, lived in it for 35 years and sold it for $160,000. A day trader could buy a hot stock for $30,000, keep it for a year and a half and sell it for $160,000. We both would have a $130,000 gain and would add $19,500 (15 percent of $130,000) to our taxable income.
However, over 35 years, the value of the dollar has changed by a factor of 5.3 to 1. The $30,000 that I paid for the home is equal to $159,000 today so my actual “real” gain was $1,000, not $130,000, but the day trader lost very little to inflation.
We have comparative dollar values going back to 1914. All we need to do is convert that table from 2011 to 1914 in the tax code and use it to determine the equivalent purchase price in 2011 dollars. You would take the original purchase price times the multiplier for the year that you bought it to get the 2011 equivalent. The adjusted purchase price then can be compared to the sale price to determine an actual gain or loss, which would be treated as regular income or loss.
Using the table, I would add $1,000 as regular income to my taxable income. The day trader would add nearly $130,000 to his taxable income, not $19,500 as he would under the current capital gains tax. This would close the loophole that people of wealth use to make large gains while paying minimum taxes and it would give a true representation of value gained or lost.
— Oren Evans