Final answer:
Taxes are typically owed on D. investment returns, specifically on capital gains, which are the profits made from an investment when it is sold. Taxation does not usually apply to the initial investment, current, or real values, but to the gains realized from the sale of the investment.
Step-by-step explanation:
Taxes are often owed on investment returns. In the United States, as well as in other countries, the government taxes the gains from private investments, also known as capital gains. This means that when an investment such as stocks or real estate is sold for more than the purchase price, the profit is subject to capital gains tax. The goal of low capital gains taxes is to encourage investment, which in turn promotes economic growth. It's important to note that taxes are not typically owed on the initial investment (the principal amount) or the current or real value of the investments, but on the gains made from those investments when they are realized upon sale.
For example, if a person invests $10,000 and the investment appreciates in value, yielding a nominal interest rate of 5%, they would be taxed on the $500 gain, without regard to inflation. Whether inflation is high or low, taxes are due on the nominal gains. In the context of international capital flows, different taxes such as Tobin taxes may apply to various types of financial transactions and investments, with the aim to influence investment types and durations.