If you work for little profit and low salary for 10 years and finally managed to sell your business for $200k gains, I can understand why you don't want to pay 33% just for that one year, especially since you no longer have a source of income until you create another business or get a job. Paying 33% instead of 15% seems unfair.
Can you elaborate on why this is unfair? From a simplistic point of view, this hypothetical person worked for 10 years and ended up with a gain of 200k (assuming income in other years was negligible). Why is it unfair to tax this gain - which can be thought of as receiving the income for 10 years in one shot - at normal income rates?
Is it because if it was normal income, the 20k/year amount would not be taxed at 33%?
> Is it because if it was normal income, the 20k/year amount would not be taxed at 33%?
Correct. If you make 15k taxable income for 4 years (i.e. 60k), you'd pay 10% in taxes filing married = 6k/year. If you make 60k in a single year (after 3 years of no income), you'd pay 10% of 17k, and 15% on 43k. That's over $2k in difference. Double the year, add more risk and zeros to the income/gains figures and you'll see why raising taxes on capital gains will take away the incentive to start a business. So it is fair to give SMBs a break. I just don't want to extend this break to investment bankers and hedge fund managers making $30m/year, regardless of how useful their services are. They should pay the same taxes as anyone with salary of $30m.
There is an easy fix though, allow them to use low/ no tax years to offset the gain amount. Anyone using it as a big wage will still be in the same tax bracket as usual.
Can you elaborate on why this is unfair? From a simplistic point of view, this hypothetical person worked for 10 years and ended up with a gain of 200k (assuming income in other years was negligible). Why is it unfair to tax this gain - which can be thought of as receiving the income for 10 years in one shot - at normal income rates?
Is it because if it was normal income, the 20k/year amount would not be taxed at 33%?