by Gene Denardo

Created on: May 07, 2009   Last Updated: May 08, 2009

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.

The other most dominant form of income is the wage or salary. This is what we "take home" from our daily work. Other types of income would be "interest" and "rent". Interest is the return from Capital itself, or most commonly "money". When you earn interest, it is because your money has financed the Capital expenditures of someone else. They are willing to pay you a portion of the return on your Capital, so they can engage in a Capital investment. Rent is simply return on a Capital product. So when you receive rent from a building, you are receiving a return on your own Capital investment in that building.

In fact, the more you peer into the workings of Capital, the more you realize how it is all related and intertwined. For instance, when you receive a "dividend" on a stock, you are receiving a portion of the earnings of the company. The stock certificate entitles you to an ownership "share" of the company and by contract, you are entitled to a proportionate share in the revenue of the company. So, the dividend is essentially a return on your Capital investment in the company.

On the other hand, it can be argued that unless you own 51% of a companies stock, you have very little say in the workings of the company, especially if it is incorporated. The board of directors, any majority share owner and the CEOs are calling all the shots and certainly don't need someone who owns .01% share to offer their opinion. With this argument, your purchase of stock is simply

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