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The Warren Buffet fallacy
Capital gain tax would be 15% only if there were no inflation!
For example, if you held shares in Buffet's Berkshire Hathaway stock, BRK.B (1)
1000 shares bought December 2001 price $50.50/ share = $50,500
Same shares sold on December 2011 price $76.30/share = $76,300
% Gain = 51% increase
$ Gain = $25,800
Capital gains tax = $25,800 x 15% = $3,870
But:
Inflation in the same period was 27.71%
Loss through inflation was $50,500 x 27.71% = $13,990
Gain after adjusting for inflation: $25,800 - $13,990 = $11.810
Actual tax rate was $3,870 / $11,810 = 32.7%
Or worse:
Inflation since 1987 has been 100%.
If he invested one million dollars in 1987 and sold the investment today for two million dollars his money would have the same purchasing power. Still, he would have to pay $150,000 capital gains tax. Is that fair?
Of course Gains and looses vary depending on period you hold stocks.
If shares in another company in the same time period gained 27.71%
the gain adjusted for inflation would be 0 (zero) but you would still
owe capital gains tax.
(1) http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=brk.b&insttype=&freq=2&show=&time=13
(2) http://inflationdata.com/inflation/Inflation_Calculators/Cumulative_Inflation_Calculator.aspx
