How You Pay Taxes Even When You LOSE Money!

Long Term Capital Gains are taxed favorably relative to interest income, which is taxed at ordinary income rates.  But did you know that Capital Gains are NOT indexed to inflation? I bet you didn't! In this video I use an article from the Tax Foundation https://taxfoundation.org/inflation-adjusting-capital-gains/ to show you the incredible penalty we pay in taxes because of not adjusting for inflation.  For example,  say you bought a stock for $100 ten years ago.  After 2.26% inflation and 4.25% real growth that $100 would grow to $187 today. You have a "gain" in this case of $87.  If you sold that stock, you'd pay long term capital gains tax of 15% on that $87 gain.  The tax would be $13, leaving you with $174. Yet the problem is that 25% of that 'growth' is due to nothing more than inflation. It's a fake gain! You earned nothing.  Imagine if you could buy a calculator for $100 ten years ago. But now, because of inflation, that same calculator costs $125.   So, from nothing more than the cost of living increasing, i.e., the value of the dollar decreasing, it costs more dollars today to buy that calculator than it did.  But with the current tax law you actually pay capital gains tax on that fake $25 "gain"! If the capital gains tax was adjusted for inflation like the tax brackets are, you'd only pay tax on the REAL GAIN which in this case would have been $62.  Your tax then would have been only $9, which is 29% lower than the way the tax code is currently concocted. Thus, the 29% tax penalty because capital gains are not indexed for inflation.  Remind you of anything? YES!  Social Security tax brackets are NOT indexed for inflation either.  Anytime taxes are not indexed for inflation more and more people get gobbled into paying more in tax.  And that, my friends, is BAD tax policy!