Budget & Tax
Trent England | April 6, 2018
Capital gains taxes: Facts and myths
In 2004, Oklahoma voters exempted some investments from the state income tax on capital gains. What does that mean? How does it work? And what about claims that this is a “handout” or only for “the rich”?
Fact: “Capital gains” is what you get when you own a house, rent property, other types of property, land, farm or business and it goes up in value—when you sell it, your profit is called capital gains. When an income tax is applied to this kind of profit, it’s called a capital gains tax.
Fact: In states like Texas, where there is no income tax, there is no capital gains tax. Taxes on income, including capital gains, are often disfavored because they create a disincentive to create value by working, improving property, or building a business.
Fact: It was Oklahoma voters, in 2004, who passed a tax reform measure (see page 34) with an exemption from capital gains taxes for property and business that are located within the state of Oklahoma. The idea was to increase the incentive for people to invest in Oklahoma, and to put Oklahoma properties and business on an equal footing with Texas.
Myth: “Only rich people pay capital gains taxes.” While many homeowners are exempt from capital gains taxes, some are not. And anyone who owns investment property or a farm or business—big or small—can feel the bite of capital gains taxes.
Myth: “Oklahoma’s capital gains tax exemption is a handout.” This is false because all the exemption does is let people keep some of their own money, the fruits of their own hard work.
Myth: “Increasing capital gains taxes will not hurt our economy.” Nobody should believe this, when politician after politician has told us that increasing taxes on cigarettes will reduce smoking. Every tax creates a disincentive. The question is, how important is the behavior we are taxing. When it comes to investing in Oklahoma, if that is something we want, the last thing we should do is penalize it with a capital gains tax.
David and Ann Brown Distinguished Fellow
Trent England is the David and Ann Brown Distinguished Fellow at the Oklahoma Council of Public Affairs, where he previously served as executive vice president. He is also the founder and executive director of Save Our States, which educates Americans about the importance of the Electoral College. England is a producer of the feature-length documentary “Safeguard: An Electoral College Story.” He has appeared three times on Fox & Friends and is a frequent guest on media programs from coast to coast. He is the author of Why We Must Defend the Electoral College and a contributor to The Heritage Guide to the Constitution and One Nation Under Arrest: How Crazy Laws, Rogue Prosecutors, and Activist Judges Threaten Your Liberty. His writing has also appeared in the Wall Street Journal, USA Today, Washington Times, Hillsdale College's Imprimis speech digest, and other publications. Trent formerly hosted morning drive-time radio in Oklahoma City and has filled for various radio hosts including Ben Shapiro. A former legal policy analyst at The Heritage Foundation, he holds a law degree from The George Mason University School of Law and a bachelor of arts in government from Claremont McKenna College.