• Your perspective on the taxation of investment income is sort of misleading.

    Taxing dividends the same as earned income is actually double taxation (once when the corporation earns it and again in the hands of the share owner). To remedy this there is a dividend tax credit to reimburse the investor for taxes paid by the corporation on his behalf. This is not a special bonus, tax advantage, preferential treatment or a loophole.

    The same sort of thinking can be applied to capital gains. The corporation earns money and pays taxes. The net income goes into retained earnings, increasing the value of the company. Taxing this gain is again double taxation. In light of this the government only taxes half of it.

    Also there is an inflation component to capital gains. Taxes on inflation doesn’t seem like preferential treatment.

    My concern is not so much the double taxation issue, but promoting investment income as somehow tax advantaged.

    Then again, maybe I’m not seeing this right. If that is the case I would appreciate it if you could show me where my thinking has gone wrong.

  • Replying to an older post but I’ll offer my two cents anyway. John, you make valid and interesting points but the reasons for the tax structure are largely irrelevant to the individual investor. What does matter is risk-adjusted, after tax returns. That is the perspective that Pat is trying to impress upon investors. The income tax rules make it more profitable to take a certain amount of risk vs the guaranteed alternatives, especially in the prolonged low interest rate environment that we find ourselves in.

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