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Capital gains tax rates have gone up and done
Suppose people bought stock XYZ in 2003 for $1000, watched it go to $1500 in 2008, then drop to $1000 again in 2008. Their "paper loss" is $500 but their real loss is zero since they are back where they started. People who bought at $800 still have made a $200 paper profit. People who bought at $1200, say, have a paper loss of $200. The paper loss or gain becomes real when they finally sell the stock.
Suppose people bought stock XYZ in 2003 for $1000, watched it go to $1500 in 2008, then drop to $1000 again in 2008. Their "paper loss" is $500 but their real loss is zero since they are back where they started. People who bought at $800 still have made a $200 paper profit. People who bought at $1200, say, have a paper loss of $200. The paper loss or gain becomes real when they finally sell the stock.
The paper gains and losses are not reported as income on income tax returns. Real gains and losses are reported, and are known as "capital gains" or "capital losses." They are taxed at lower rates and are treated differently than income earned by salaries and wages.
The paper gains and losses are not reported as income on income tax returns. Real gains and losses are reported, and are known as "[[capital gains]]" or "capital losses." They are taxed at (typically) lower rates and are treated differently than income earned by salaries and wages.
The psychological impact of paper gains and losses is very important. People with large paper gains are likely to feel richer and to spend more money, while those with paper losses feel poorer and are more cautious. If people feel that the prices will keep falling they will become very cautious. Banks will stop lending to average customers, which is happening in 2008.
The psychological impact of paper gains and losses is very important. People with large paper gains are likely to feel richer and to spend more money, while those with paper losses feel poorer and are more cautious. If people feel that the prices will keep falling they will become very cautious. Banks will stop lending to average customers, which is happening in 2008.