- May 15, 2000
Risk is not subsidized.
(First thing you on the left should get straight is that a "subsidy" is when the govt hands out taxpayer (other peoples' money) money to someone or something. I.e., Solyndra. A tax benefit is when you keep more of your own money.)
A tax benefit - lower rates for LTCG - is for (at least) two reasons: (1) to compensate for inflation and (2) incentivize investment. It's not for risk. There is no mention of risk in the tax code. Instead, to qualify for the low rate the tax code defines "investment" and limits the low rate to transaction smeeting that definition (including a holding period now set at + one year).
In fact it can be argued that the tax code discourages risk. If you lose money in an investment your deduction is severely limited. Likewise with gambling losses.
Actually a subsidy comes in many forms, including a tax break.
Ask yourself this, if the types of risks associated with capital gains did not get special tax treatment would those activities still exist?
If you answered "no", then it's a subsidy. If you answered yes, then you just made the case for why they aren't needed.