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Could you give more detail about how capital gains taxed at a lower percentage than salary/profit has far-reaching consequences?

• zo1 11y ago
  Well, it simply makes people favour capital gain/growth over other sources of income. So, for example, CEO's would prefer their compensation in stocks rather than getting a salary. It contributes to skew in terms of buying property or capital that'll "appreciate" or get speculated on. Rather than investing in creating a business that'll pay dividends. Most investment these days is speculation, or the expectation of "increase" in the capital value of the investment. Dividends are practically non-existent, and are a tiny fraction of the "return" you get simple from increased capital value. This, I would argue, gives companies/organizations/corporations the wrong signal. It tells them to optimize for "capital growth" of the stock, because that's what investors want/expect. So that means pumping profits back into the company itself (which requires reducing dividends to token amounts) and aiming for "growth". To be honest, it'd be difficult to quantify exactly how much the different tax-rates skew the markets. And you have to take it along with the rest of the market distortions. E.g. Retirement annuity tax benefits, or property-ownership tax benefits.