A Conceptual Framework for Capital Gain

84 Pages Posted: 4 Oct 2017  

Calvin H. Johnson

University of Texas at Austin - School of Law

Date Written: 2017


Conceptual Framework presents a normative framework for what qualifies as capital gain, drawing its principles from current law and traditions, but criticizing anomalies identified by those principles.

Conceptual Framework argues that “property” within the statutory definition of capital asset arises from the British concept of capital, that is, the castle and manor that had to be preserved for the yet unknown male heir even if sold at a gain. Income interests had to live off the green stuff, harvest and crops, and never had access to capital including capital gain. “Income” including compensation, rents, interest, ordinary business profits can never be capital or capital gain because “income” and “property” are mutually exclusive under the received wisdom.

There are five "strings" to the project:

(1) Green stuff (income) is never capital gain.

(2) Capital gain is gain on capital so compensation, selling blood and celebrity never are the product of capital and do not qualify as capital gain.

(3) Capital rates are understood to be a reduction of positive tax rates and not a subsidy negative tax better for a transaction than mere zero tax.

(4) Many “properties” including for instance judgements are look-through properties that derive their ordinary or capital character from the underlying claim. (5) A necessary argument to adoption of lower capital gains rates is that Treasury would profit by increased sales. If that is unreasonable, then that is not what Congress meant. Thus perishables and interests that expire on death are not capital assets.

The essay concludes noting where capital gains rates have no place: under a consumption tax, under a mark to market system, and if there is no step up at death.

Suggested Citation

Johnson, Calvin H., A Conceptual Framework for Capital Gain (2017). Florida Tax Review, Vol. 20, No. 10, 2017; U of Texas Law, Public Law Research Paper. Available at SSRN: https://ssrn.com/abstract=3048127

Calvin Harsha Johnson (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
512-232-1306 (Phone)
512-232-2399 (Fax)

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