Why are capital gain taxes so low?

Imagine that you had $100K to invest.

Option 1 you can loan the money to a small business. The business promises to repay you $120k for $20k (20%) profit. You'll owe 35% tax on the profit, so the government takes $7000 in taxes and your net gain is $13,000

Option 2, you can invest in the stock market where you expect to earn $15K (15%) return. Tax rates are capped at 15% so the government takes $2250 in taxes, leaving you with $12,750 net profit.

So even though the first option pays 5% higher return the two are almost identical after taxes.

As a result a lot of investors choose to put money in the stock market that they would invest in other ways if the taxes were all the same.

So the bottom line is that the 15% cap on long term capital gains helps keep money in the stock market and keep it from crashing.

There are plenty of people who think the cap should be abolished for one reason or another. I won't try to influence your opinion on the topic, but hopefully at least you understand why the policy is in place.

In theory, low taxes encourage investment.

However, studies have show there is no increase in investment after capital gains taxes are lowered.

So, in reality, it was a gift from Congress to their friends on Wall Street.

Because the people who set these things, Congress, have done a big favour to their rich friends. The rich tend to have wealth so they care about capital gains more than income tax. This is why Mitt Romney paid a tax rate of 14% on his total income the year he was running for President.

the rates are determined by Congress and when you trace back to the origination of most bills there is some element of the society that has some unseen benefit--federal laws cannot be made to benefit ANY specific person

those who have cap gains are generally those who have money to invest(in order to make more) and that kind of money generates jobs and business improvements

so keeping the tax rates low on that kind of profitable money generates the entry of more into the market--in turn to allow more to be used

Only on long term gains. And it is to promote investment, which helps drive the economy and benefits everyone.

Someone worked for the money they invested at some point.

Politics. Wealth people donate more to campaigns. And they likely have more capital gains income than salary income. So it's in their best interest to keep the rate lower. It wasn't always that way.

To encourage people to take investment risk, since ultimately that's what builds the economy & creates new companies and new jobs....

So that the wealthy can pay lower taxes and the less wealthy have to pay a higher fraction of their total income.

Because the rich want it that way and the donations to the re-election campaign funds do NOT occur if they don't get it.

Because if they were too high people would look elsewhere to invest their money.