ABSTRACT
In the United States, realised capital gains were originally taxed as ordinary income, but since the Revenue Act 1921 they have been subject to preferentially low rates. From the standpoint of equity, it is well established that capital gains should be taken into account in determining personal income tax liability. Moreover, preferential treatment of capital gains encourages the conversion of ordinary income into capital gains. In principle, capital losses should be deductible in full against either capital gains or ordinary income. Capital gains cannot be treated on a par with current income flows when measuring income during a period of rising prices. The percentage of capital gains included in taxable income under an inflation-corrected system would not be a flat percentage, as it is under present US tax law; it would vary with the rate of inflation and the length of time the asset was held.
