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According to Wikipedia, a capital gain is "profit that results from the sale of a capital asset over its purchase price". What this means in layman's terms is that if you purchase a piece of real estate such as a house for $100,000 and then in 5 years you sell it for $125,000, you have a capital gain of $25,000 which you will then owe taxes on.

Capital gains also refer to the gains made in the stock market. If I purchase 10 shares of Intel stock for $10 a piece and then a year later am able to sell those 10 shares for $20 each I have a capital gain of $100 (My total cost basis was $100 on those shares and I sold them for $200).

The reason that I feel that increasing the capital gains taxes will discourage investment is that the United States is currently in or close to a recession that was caused by credit problems in the housing market. The housing market has had declining prices for the first time in years and many people no longer have equity in their houses, they are "flipped". What this means is that in the example above they may have paid $100,000 for the house and then when it was worth $125,000 they refinanced and took out a home equity loan (line of credit based on the capital value of your asset) and now their house has decreased in value down to say $110,000. Since their home loan is now more than the value of their house they are "flipped" on the house which has rarely occurred in the past (this is more typical with cars when you do not make a large down payment).

Since the housing market is already struggling, taxing any gains made by investing in the real estate market even more will discourage new buyers and also investment firms from purchasing houses being foreclosed on. We could end up with many houses where the bank is stuck with the house and unable to sell it, resulting in write-downs where the bank writes off the property as a complete loss even though they still have it! This is not a good thing for the American economy and has already been happening across the country as investment firms and major banks go under or have reported huge losses related to mortgage issues.

We do not need less people investing in this market right now, we need more. The overall investment environment related to capital assets such as real estate is very skittish right now and banks and individual investors are very cautious about investing in any of it. Higher taxes will not encourage more investment, instead investors will look elsewhere to find ways to earn

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