Break Down The Gains Tax

Someone wants Dave to explain how the capital gains tax works.

QUESTION: Listener asks Dave to explain the capital gains tax. Dave does, and explains how not having it would instantly stimulate the housing market, in this clip from September 30, 2008.

ANSWER: When you invest in something, and it makes a profit, you have to pay taxes at a lesser rate than your personal, ordinary tax rate. For a wealthy person, their personal tax rate is about 40% of their income. Instead of that, if we just didn’t have the capital gains tax law, then investors would love to invest in a piece of real estate because any money they made on that would be tax free. That would cause a lot of people to invest in real estate and stimulate the housing market instantly. The same would be true of the stock market, and liquidity would be solved.