corwinnascastle

Friday 22 January 2016

Capital Gains Tax

When anything is "taxed", a portion of its value is removed and funnelled through government to be used [or as some might say abused!] in a different area of the government or the economy. When this value is "removed", two possibilities occur; the original owner of the value now has less value, or the next owner or "purchaser" of the value must pay more to compensate for the tax amount. Supply and demand will determine which of these scenarios play out. Often, a compromise occurs somewhere in the middle.

Capital gains is a form of income tax. It is considered to be income that occurs as a result of a Capital investment. A Capital investment is an investment in "future" productivity, such as shares in company or a working building or rental property. Most "business" investments are considered Capital investments. When these investments are sold, the difference between the amount originally paid plus any later improvements and the amount realized upon the sale is referred to as the Capital gain.

Can you call it tax fraud?

If there is one phenomenon that all of us would be more than happy to get rid of at the same time, it is TAX. To many it is the ultimate fraud imposed by the politicians and IRS - the biggest crime on the unsuspecting public by using the power of the state. At times, such a rationalization serves enough justification to evade tax.

We often feel cheated by taxes, and wonder as to why should anyone pay any tax? why should one depart with one's hard earned money? None of these questions is a new one, and yet these are questions which never die. But before you try to answer that question, there is one more question that needs to be answered. Why do we need a government, or do we need a government at all? Actually this question is the same as earlier ones, only here we talk about government, not taxes. But taxes are like blood in the body of the government. They are essential to make the government work.

Imagine for a moment that there is no government. So if you need roads, or airports or street lights, people just come together, collect some money, and get the roads or airports or street lights built. But there is more that we might need. We need safety, and order, and also somebody to prevent other countries taking us over for a ride. So maybe once again, people can come together, collect some money and get it done. It is not exactly impossible. There is just one small problem. What if somebody refuses to share the burden. If one person does that, a few more may do the same, and if many do the same, then people like you amd me may ask ourselves as to why are we the only fools bearing the burden of the whole society, and maybe if we too step back, perhaps there will be nobody ready to contribute anything for these necessities. And yet, all these are required. And before we forget, if there is somebody in the neighborhood, who thinks he is the big don, you and me may have to worry much more about keeping ourselves and our families safe, and when we do that, we may end up losing much more than we would ever be, by paying just taxes.

Taxes are never welcome, and yet there can be no respite from them either. Income tax is just another tax. If you venture into the world of economics, it will not take you long to realize that whether it is a tax on income, or consumption, or corporate profit, or turnover, or any other thing, in the end it is the people like you and me who have to pay it. And if we do not pay it... if we are smart enough to defraud the exchequer, we only compound the problems that we, as part of the society will have to face for it.

Whatever may be the structure of a tax, and whatever may be the tax rates, there will always be someone who will have to share a higher burden, and whosoever it may be, there can always be arguments that it is not exactly fair. The reason for this is that there is no ideal or absolutely fair tax. It is always the case of next best that we can achieve. So whatever tax rate, and whatever may it be based upon, someone somewhere will always have enough rationale to feel that he is being cheated, and to use that rationale in justifying his evasion of tax. Psychologists call it 'rationalization', a defense against guilt and stress.

Taxes will always be associated with some stress, whether you pay them or evade them. One can use rationalization for whatever one may decide to do, and we all do that. Unfortunately, rationalizing paying taxes is far easier than rationalizing a decision to evade and defraud, for any law abiding, peace loving person with a good self esteem. Thus, without going into the normative judgmental process, one can still conclude that paying tax is easier than evasion, and overall a better state of health, both social and psychological.

Fraud is a fraud is a fraud, and how much one may try, it is not easy to fool your own self. Therefore it may not really be worth getting into the trouble, even if you beat the IRS. And by the way there is always the risk of evasion getting caught. So the bottom-line is.....taxes may not be fair, but paying them is still the best alternative.......we can justify and rationalize everything, but doing it for paying the tax is better for everyone, including one's own self.