Why the capital gains tax rate will remain forever low.

[jpljr77]

Long term capital gains (the selling of stock held more than a year, the sale of a business, etc.) and dividends are currently taxed at 15%. So if someone buys $100,000 of stock in a company and sells it 18 months later for $200,000, their tax on that transaction will be only $15,000.

President Obama has already signed TWO extensions of this 15% rate (and yes, it was lowered under Bush) under intense pressure from Congress. Why does Congress care so much?

Here's why:

http://www.stltoday.com/business/columns/david-nicklaus/article_088229a0-87ce-11e0-bffd-0019bb30f31a.html">A new research paper has identified a small group of investors who consistently beat the stock market over time, but its authors weren't studying hedge funds or mutual funds. They were studying Congress.

Four academic researchers, including James Boyd, chair of the finance department at Lindenwood University, pored through U.S. House members' financial-disclosure statements to determine when they bought and sold stocks. Despite some problems with the data, they were able to focus on 16,000 transactions by more than 300 representatives between 1985 and 2001.

Relatively few House members turned out to be stock traders -- at most, 27 percent of them made trades in a given year. The ones who traded, though, turned out to be uncanny stock pickers: Their purchases outperformed the overall market by more than 6 percent a year.

Interestingly, Democrats' portfolios outperformed those chosen by Republicans. The Dems beat the market by nearly 9 percent a year, but then, their party also controlled the House for 10 of the study's 17 years.

There's just too much money to be made to tax it fairly. As if you needed any additional prodding, the researchers sum up their findings thusly: "We find strong evidence that Members of the House have some type of nonpublic information which they use for personal gain." Duh.

It's disturbing that Democrats seem to be more willing to cheat than their counterparts. Or perhaps that discrepancy can be explained by the time in control disclaimer.

And just so you don't think it was just Congresspeople, there's this story today: http://dealbook.nytimes.com/2011/05/26/former-nasdaq-executive-pleads-guilty-to-insider-trading/">Former Nasdaq Executive Pleads Guilty to Insider Trading.

Donald L. Johnson had a privileged role at the Nasdaq Stock Market. When companies that trade on Nasdaq wanted to understand how impending news would affect their share prices, they would consult with Mr. Johnson, who was a senior executive on the exchange’s so-called market intelligence desk.

Over a three-year period, Mr. Johnson took that secret corporate information and, directly from his work computer, traded in an online brokerage account in his wife’s name, reaping illegal profits of about $750,000.

Too many people with power over traders have got their grift on. There's just too much money to make to ever fairly tax capital gains.