Thomas Sowell, Clueless on Capital Gains

http://www.nationalreview.com/blogs/print/329110 

A lot of pop-economics writers have little to no education in the field of economics.  Think of Lawrence Kudlow, history major, Jerry Bowyer, accounting major and Bruce Bartlett, also a history major.  Thomas Sowell actually has an education in the field of economics as well as decades of relevant experience which is why it’s so strange that he is so clueless with respect to capital gains.

In a recent column about capital gains, Sowell reveals that he doesn’t even really know what a capital gain is.

Sowell describes a scenario where he spends ten years writing a book thenceforth selling it to a publisher for $100,000.  He argues that this constitutes a capital gain because there is no guarantee that the publisher will pay him after ten years.  In another scenario he describes a builder who spends ten years creating a housing development.  When he sells the houses, Sowell argues that the income constitutes capital gain because of risk.

When you write a book and sell it for royalties, it’s not a capital gain.  It’s compensation for the work you performed.  The fact that there is risk involved doesn’t render it a capital gain.  Yes, I agree that holding an asset with the hopes that the value will increase and thereby reaping a gain on the sale involves risk, but that does not mean that all income subject to risk is a capital gain.  When you build a house and sell it, any income is ordinary operating income.  If you sell the house at a loss, then it’s an ordinary operating loss.

There are legitimate arguments for taxing capital gain income below that of ordinary income.  But for crying out loud, educate yourself with respect to what constitutes capital gain income before you enter into the discussion.