A few weeks ago, I mentioned that the Fifth Amendment is supposed to protect Americans from the the Federal government confiscating their property without due process. Yet the capital gains tax is exactly that: a seizure tax which actually impoverishes Americans. The Cato Institute has done an excellent video explaining why capital gains taxes is theft, pure and simple:
So first the central bank robs savers blind by devaluing the dollar. Then government taxes the nominal capital gains (that are actually losses when inflation is considered). “Nominal” means the dollar figure goes up but the actual buying power of the sale price remains consistent with the earlier purchase price. The house owner hasn’t made any real gains at all.
Now this is one good reason that Canadians enjoy zero capital gains tax on their primary residence. Moreover, housing tends to go up everywhere at once, and when Canadians sell a house, there is no actual extra money anywhere because they often just go out and buy another house which has been subject to the same nominal gains.
Let’s say that an American in Canada bought a house at CDN $500,000 in 1999 which is now worth CDN $1,000,000. If he sells it, it would have a nominal capital gain of CDN $500,000; now the CRA says the gains are all exempt because it is his primary dwelling, but the United States says he owes 20% on the $250,000 because only the first $250,000 is exempt; and so now he must pay the IRS $50,000 in taxes. But of course if you take the exchange rate into consideration, the tax owing would be higher–since the exchange rate when he bought the house was around 1.50 CDN/US; now it is one to one. So the initial purchase price was CDN $500,000/1.5=US $333,333; capital gains= US $1,000,000 (sale price) – US$ 333,333 (Original purchase price)=US $666,667-$250,000= 416667*20%(Obama’s capital gains tax rate)= $83,333 in taxes.
But of course, the IRS knows nothing about real estate transactions in Canada so you have to hand over this information voluntarily and then voluntarily write the cheque to them, because if you are a Canadian citizen, the CRA will not collect these capital gain taxes for the IRS. But now, if that man turns around and buys a new house, he will find that he needs all $83,333 in taxes that the IRS received even just to be able to access a house similar to the one he sold. I.e., the gains were all nominal, since the house didn’t really go up in real value during the 13 years that he lived in it.
Well, this should make you want to go out and renounce your citizenship. Or not. For how would the IRS ever find out that you sold your home–or that you even own a home in Canada–unless you tell them? Our worst enemy is the IRS. It is the greatest threat to our prosperity. The second worst enemy we have is ourselves, because of our voluntarily ratting on ourselves to our worst enemy by giving them information that they wouldn’t otherwise have, whereby they can assess us huge tax liabilities.