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Taxing capital is about the worst, most destructive tax policy you can have. 1- Capital is the main driver of productivity, and productivity is the only long-t

Taxing capital is about the worst, most destructive tax policy you can have. 1- Capital is the main driver of productivity, and productivity is the only long-term way to increase the standard of living. 2- Capital is very mobile. Static analysis of taxation doesn't just fail, it fails miserably. It can move offshore. It can be structured so that its gains are realized in years or ways that avoid taxes. 3- Taxes on capital affect everybody, not just who they are intended to affect. If you want to tax those with very high incomes, directly tax those with very high incomes. Remember, ALL taxes are paid for by people by definition. A corporation doesn't really pay taxes, but shareholders take a hit in the form of a lower stock price and lower dividends, employees take a hit in lower pay, the jobless who would have worked there aren't hired, the suppliers take a hit in less production, and the customers take a hit in higher prices. Most people hurt are those that aren't the 1%. The US has one of the highest marginal tax rates on capital, and it has only exasperated the problem because capital is what improves the lives of those at the bottom. Tax it, and the wealthy will find ways to shield themselves, but those who can't afford sophisticated tax strategies will be hurt the most. STOP TAXING CAPITAL. The single best thing the US could do to raise the standard of living for everybody is to entirely eliminate all corporate and capital gains taxes. They collect so little money for the damage they do, and when you count in the cost of enforcement, they barely pull in their cost.

netcan 11y ago
Tax policies are evolved creatures with the very big evolutionary force being the practicalities of what you can tax. For most income earners, defining money as income is easy and taxing it is easy. For high income earners, it is not. Is this a revenue, profit, personal income, capital gains, etc? Capital is mobile, you're right. So are cash flows from that capital. A lot of that is for reasons to do with legal structures: jurisdictions, corporate law, etc. It's hard stuff to change, especially if your goal is "raise more tax next year." This is why the upper middle classes pay so much tax. They're easy to tax. Anyway, I agree with you to a certain extent. It's hard to tax capital gains, or other incomes that are not "salary from job X." But, I don't think the "improves the lives of those at the bottom" argument holds water at all. So is "Labour" and so is "Natural Resources" or any other economic fundamental.
- WalterBright 11y ago
  I'd like to see a large shift from taxing productive activity to taxing things like pollution. I.e. reduce taxing things we want people to do and increase taxing things we want less of.
  - netcan 11y ago
    I think sin taxes are marginal, ultimately. I have nothing against them, but I don't think they change the game in fundamental ways.
    - WalterBright 11y ago
      Historically, they do. People talk about high marginal tax rates in the 1950s, but few to nobody actually paid those rates. This was because there were a lot of tax shelter options available, and deductions were a lot looser. Reagan got the tax reductions through Congress by agreeing to eliminate the tax shelters and tightening up a lot on deductions. The result was a massive shift out of relatively unproductive tax shelter investments into more productive ones. Although I've never seen this opinion in print, I suspect a lot of the economic growth that resulted was a consequence of this shift in investments.
  - Ericson2314 11y ago
    But inequality is something we don't want. I'm more OK with the argument that income/wealth taxes are only good to the extent they progressive. [As a US resident] VATs don't sound appealing.
  - deciplex 11y ago
    What if we want less wealth inequality?
    - ZenoArrow 11y ago
      Tax those whose income exceeds the desired upper limit. In other words, in addition to having a minimum wage you have a maximum wage, where the maximum wage is a multiple of the minimum wage (x1000, for example). Any income earned between the minimum and maximum wage would go untaxed, but exceeding the maximum wage results in incurring tax. In order for this to work, we would need to include a way to tax assets as well, as otherwise people could just put their money into assets.
m0th87 11y ago
How do you then prevent a regressive tax policy, given capital is almost the exclusive form of wealth accretion for the 1%?
- ZenoArrow 11y ago
  You could tax assets, e.g. land-value tax.
  - jnordwick 11y ago
    That is still a tax on capital and like to cause a lot of social issues. Property taxes tend to drive people out of their homes and out of business too easily. Plus then you taxing inflationary effects probably more than anything else. Real estate for example is very inflation sensitive and your tax bill would be all over the place if you taxed the capital gain on that. Then what do you do when the land falls in value? Do you really think the government would give a rebate? And then when it rises again, hopefully they wouldn't tax it again (the basis for the last taxation should have been raised), but I wouldn't put it past legislators grabbing for money by saying you can only back back 5 years or something to determine the tax basis.
    - ZenoArrow 11y ago
      > "That is still a tax on capital" What's your definition of capital? "and like to cause a lot of social issues." Which parts of this article on land-value tax do you disagree with? https://en.m.wikipedia.org/wiki/Land_value_tax https://en.m.wikipedia.org/wiki/Land_value_tax
      - sokoloff 11y ago
        That the methods proposed for valuing are good enough. https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2Fappraisal https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2F... In particular, the "Value can be computed by capitalizing rental streams." (Is someone renting the land, or are they renting the office skyscraper that's on the land?) "Further, valuators in the home-and-contents insurance industry do so in order to calculate an insurance premium, separating the value of the home from the value of the land." My experience is that's done in a straight-line percentage method ("the land is 20% of the purchase price in this area"), which doesn't distinguish adequately enough for taxation valuation purposes, IMO, but does provide some basis for insurance company purposes. "Another approach is the residual method: the value of the site is the property's total value minus the depreciated value of buildings and other structures." So, the land I own under a rental property gets more and more valuable each year (as I depreciate the buildings and structures)? Then, I sell it to another investor and the land value drops again to a low baseline and starts to rise as THEY depreciate the buildings? That doesn't make any sense to me. The article admits that the whole valuation topic is a hard problem and I agree with that.
chrisan 11y ago
> If you want to tax those with very high incomes, directly tax those with very high incomes. I'm not going to argue for/against capital taxes, but what are your thoughts on those who are in the top x% and avoid high income wages and make money other ways, or the whole Warren Buffet/secretary thing?
- jnordwick 11y ago
  1- I don't like using the 1 in a billion for examples. It is way too easy to draw really bad conclusions. Even if everything he tells us is true, do you really want to set taxes for the top 1% based on 20 obscenely wealthy people in the US? There's a lot of other reasons Buffet in particular is a bad example of anything basically. 2- A lot of these legal tax avoidance systems are a result of known breaks put in place for one intended use, but wind up being useful is so many many more ways. It is kind a game with many numerous complex rules where the winner winds up being the person with can find the most effective way of getting around those rules. To me this says the rules need to be made simpler and many tax breaks reconsidered, but obviously that isn't politically easy. Politicians tend to favor the group that makes the most noise, and when you try to take away a favorite tax break, those people will make a hell of a lot of noise. I think if pols made the decision to actually go against that, the electorate as a whole would support them, even some of the vocal few. 3- If he's being really truthful, I think its pretty bad. One of the big issues how you count payroll taxes for Social Security. When trying to analyze tax fairness, I don't think you should include them. After all, they are retirement program that comes back to you, and when you do retire, the more you paid in the lower your rate of return, so saying they are a regressive tax is completely discounting the nature of the tax. You should also then include everybody's retirement savings too (not possible I know). I favor progressivity in taxes, but the way some people go about doing the accounting, they seem to be very disingenuous and really want to just soak "the rich" as a matter of principle regardless of how it affects the entire economy. They would give up 20% of everybody's wealth as long as they could bring down the wealthy by 50%.
xivzgrev 11y ago
Trickle down economics? The IMF found if income share of top 20 percent increases, GDP declines over medium term. Conversely, if bottom 20 percent increases, GDP goes up. It makes sense - rich people invest their money, which may or may not drive economy. Poor people spend, which absolutely drives economy.
- jnordwick 11y ago
  Redistribute if you want. I'm just saying do it though different tax mechanisms. Capital taxes are the worst possible way.
xivzgrev 11y ago
Trickle down economics? The IMF found if income share of top 20 percent increases, GDP declines over medium term. Conversely, if bottom 20 percent increases, GDP goes up. It makes sense - rich people invest their money, which may or may not drive economy. Poor people spend, which absolutely drives economy.
RockyMcNuts 11y ago
Earn millions from investing, via dividends and capital gains, pay 15% tax on it. The FICA 'wedge' on the first dollar earned by a minimum wage worker is 15.3%. How is that fair, that Warren Buffett's secretary pays a higher tax rate than he does? And furthermore there are all kinds of ways of reducing the 15%, and all kinds of incentives for investment in the form of accelerated depreciation, deductibility of interest etc., and all kinds of easy ways to make labor income a dividend or capital income. Think of labor income as a return on human capital and the human as deserving of the same tax treatment as the factory or the tools. This notion that income from capital shouldn't be taxed or should be taxed less than income from labor is rent-seeking of the worst kind. Can a doctor can say, all human welfare, progress, income depends on health, etc. and I have mobility and can work anywhere in the world, so don't tax me? It's madness. Capital flows to places that have security, infrastructure, public health and education, and the taxes that pay for them.
- jnordwick 11y ago
  1- Taxing capital still harm those at the bottom of the ladder the most. Even if we accept what you say, we still shouldn't tax capital, but find better ways tax. Taxing capital gains and dividends still falls heavily, in secondary effects, on those least able to avoid it. 2- FICA is 20% an insurance policy and 80% a retirement plan that you get back when you retire. You actually get a better deal (you get more per dollar contributed if you are less wealthy). What you are really saying is you want the wealthy to pay for health insurance and retirement for those lower on the income ladder. You should really just own that position instead of trying to hide it. 3- > rent-seeking of the worst kind You and a large chunk of people don't seem to really understand that concept. Me buying a factory and in turn buying labor from people and making a return on that investment isn't anywhere close to rent seeking.
  - RockyMcNuts 11y ago
    1 - please cite peer reviewed papers by legitimate economists (not rent-seeking lobbyists or nutbags, everyone knows who they are) 2 - it's a retirement plan when it's convenient to view it that way, a tax when it's not. Government views it as a tax when including it as tax revenue when calculating e.g. budget deficits. Right-wing pundits view it as a tax when talking about the size of big government. In terms of economic impact and incentive to work for wages I believe it acts mostly as a tax, just as you think incentives to invest are impacted by capital gains taxes etc. 3 - building a factory is not rent-seeking, saying your income from it should not be taxed is very transparently so and productivity growth increases surplus, it does not determine which factor of production the surplus accrues to. capital investment does not directly increase wages. labor supply and demand does. increasing productivity should usually shift labor demand higher, however trends in labor supply or structural factors that impact labor's bargaining position can sever the connection between productivity and labor demand (monopolies and monopsonies, import substitution, labor regs, labor's ability to organize etc.).

netcan 11y ago

Tax policies are evolved creatures with the very big evolutionary force being the practicalities of what you can tax. For most income earners, defining money as income is easy and taxing it is easy. For high income earners, it is not. Is this a revenue, profit, personal income, capital gains, etc? Capital is mobile, you're right. So are cash flows from that capital. A lot of that is for reasons to do with legal structures: jurisdictions, corporate law, etc. It's hard stuff to change, especially if your goal is "raise more tax next year." This is why the upper middle classes pay so much tax. They're easy to tax. Anyway, I agree with you to a certain extent. It's hard to tax capital gains, or other incomes that are not "salary from job X." But, I don't think the "improves the lives of those at the bottom" argument holds water at all. So is "Labour" and so is "Natural Resources" or any other economic fundamental.

WalterBright 11y ago
I'd like to see a large shift from taxing productive activity to taxing things like pollution. I.e. reduce taxing things we want people to do and increase taxing things we want less of.
- netcan 11y ago
  I think sin taxes are marginal, ultimately. I have nothing against them, but I don't think they change the game in fundamental ways.
  - WalterBright 11y ago
    Historically, they do. People talk about high marginal tax rates in the 1950s, but few to nobody actually paid those rates. This was because there were a lot of tax shelter options available, and deductions were a lot looser. Reagan got the tax reductions through Congress by agreeing to eliminate the tax shelters and tightening up a lot on deductions. The result was a massive shift out of relatively unproductive tax shelter investments into more productive ones. Although I've never seen this opinion in print, I suspect a lot of the economic growth that resulted was a consequence of this shift in investments.
- Ericson2314 11y ago
  But inequality is something we don't want. I'm more OK with the argument that income/wealth taxes are only good to the extent they progressive. [As a US resident] VATs don't sound appealing.
- deciplex 11y ago
  What if we want less wealth inequality?
  - ZenoArrow 11y ago
    Tax those whose income exceeds the desired upper limit. In other words, in addition to having a minimum wage you have a maximum wage, where the maximum wage is a multiple of the minimum wage (x1000, for example). Any income earned between the minimum and maximum wage would go untaxed, but exceeding the maximum wage results in incurring tax. In order for this to work, we would need to include a way to tax assets as well, as otherwise people could just put their money into assets.

m0th87 11y ago

How do you then prevent a regressive tax policy, given capital is almost the exclusive form of wealth accretion for the 1%?

ZenoArrow 11y ago
You could tax assets, e.g. land-value tax.
- jnordwick 11y ago
  That is still a tax on capital and like to cause a lot of social issues. Property taxes tend to drive people out of their homes and out of business too easily. Plus then you taxing inflationary effects probably more than anything else. Real estate for example is very inflation sensitive and your tax bill would be all over the place if you taxed the capital gain on that. Then what do you do when the land falls in value? Do you really think the government would give a rebate? And then when it rises again, hopefully they wouldn't tax it again (the basis for the last taxation should have been raised), but I wouldn't put it past legislators grabbing for money by saying you can only back back 5 years or something to determine the tax basis.
  - ZenoArrow 11y ago
    > "That is still a tax on capital" What's your definition of capital? "and like to cause a lot of social issues." Which parts of this article on land-value tax do you disagree with? https://en.m.wikipedia.org/wiki/Land_value_tax https://en.m.wikipedia.org/wiki/Land_value_tax
    - sokoloff 11y ago
      That the methods proposed for valuing are good enough. https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2Fappraisal https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2F... In particular, the "Value can be computed by capitalizing rental streams." (Is someone renting the land, or are they renting the office skyscraper that's on the land?) "Further, valuators in the home-and-contents insurance industry do so in order to calculate an insurance premium, separating the value of the home from the value of the land." My experience is that's done in a straight-line percentage method ("the land is 20% of the purchase price in this area"), which doesn't distinguish adequately enough for taxation valuation purposes, IMO, but does provide some basis for insurance company purposes. "Another approach is the residual method: the value of the site is the property's total value minus the depreciated value of buildings and other structures." So, the land I own under a rental property gets more and more valuable each year (as I depreciate the buildings and structures)? Then, I sell it to another investor and the land value drops again to a low baseline and starts to rise as THEY depreciate the buildings? That doesn't make any sense to me. The article admits that the whole valuation topic is a hard problem and I agree with that.

chrisan 11y ago

> If you want to tax those with very high incomes, directly tax those with very high incomes. I'm not going to argue for/against capital taxes, but what are your thoughts on those who are in the top x% and avoid high income wages and make money other ways, or the whole Warren Buffet/secretary thing?

jnordwick 11y ago
1- I don't like using the 1 in a billion for examples. It is way too easy to draw really bad conclusions. Even if everything he tells us is true, do you really want to set taxes for the top 1% based on 20 obscenely wealthy people in the US? There's a lot of other reasons Buffet in particular is a bad example of anything basically. 2- A lot of these legal tax avoidance systems are a result of known breaks put in place for one intended use, but wind up being useful is so many many more ways. It is kind a game with many numerous complex rules where the winner winds up being the person with can find the most effective way of getting around those rules. To me this says the rules need to be made simpler and many tax breaks reconsidered, but obviously that isn't politically easy. Politicians tend to favor the group that makes the most noise, and when you try to take away a favorite tax break, those people will make a hell of a lot of noise. I think if pols made the decision to actually go against that, the electorate as a whole would support them, even some of the vocal few. 3- If he's being really truthful, I think its pretty bad. One of the big issues how you count payroll taxes for Social Security. When trying to analyze tax fairness, I don't think you should include them. After all, they are retirement program that comes back to you, and when you do retire, the more you paid in the lower your rate of return, so saying they are a regressive tax is completely discounting the nature of the tax. You should also then include everybody's retirement savings too (not possible I know). I favor progressivity in taxes, but the way some people go about doing the accounting, they seem to be very disingenuous and really want to just soak "the rich" as a matter of principle regardless of how it affects the entire economy. They would give up 20% of everybody's wealth as long as they could bring down the wealthy by 50%.

xivzgrev 11y ago

Trickle down economics? The IMF found if income share of top 20 percent increases, GDP declines over medium term. Conversely, if bottom 20 percent increases, GDP goes up. It makes sense - rich people invest their money, which may or may not drive economy. Poor people spend, which absolutely drives economy.

jnordwick 11y ago
Redistribute if you want. I'm just saying do it though different tax mechanisms. Capital taxes are the worst possible way.

xivzgrev 11y ago

RockyMcNuts 11y ago

Earn millions from investing, via dividends and capital gains, pay 15% tax on it. The FICA 'wedge' on the first dollar earned by a minimum wage worker is 15.3%. How is that fair, that Warren Buffett's secretary pays a higher tax rate than he does? And furthermore there are all kinds of ways of reducing the 15%, and all kinds of incentives for investment in the form of accelerated depreciation, deductibility of interest etc., and all kinds of easy ways to make labor income a dividend or capital income. Think of labor income as a return on human capital and the human as deserving of the same tax treatment as the factory or the tools. This notion that income from capital shouldn't be taxed or should be taxed less than income from labor is rent-seeking of the worst kind. Can a doctor can say, all human welfare, progress, income depends on health, etc. and I have mobility and can work anywhere in the world, so don't tax me? It's madness. Capital flows to places that have security, infrastructure, public health and education, and the taxes that pay for them.

jnordwick 11y ago
1- Taxing capital still harm those at the bottom of the ladder the most. Even if we accept what you say, we still shouldn't tax capital, but find better ways tax. Taxing capital gains and dividends still falls heavily, in secondary effects, on those least able to avoid it. 2- FICA is 20% an insurance policy and 80% a retirement plan that you get back when you retire. You actually get a better deal (you get more per dollar contributed if you are less wealthy). What you are really saying is you want the wealthy to pay for health insurance and retirement for those lower on the income ladder. You should really just own that position instead of trying to hide it. 3- > rent-seeking of the worst kind You and a large chunk of people don't seem to really understand that concept. Me buying a factory and in turn buying labor from people and making a return on that investment isn't anywhere close to rent seeking.
- RockyMcNuts 11y ago
  1 - please cite peer reviewed papers by legitimate economists (not rent-seeking lobbyists or nutbags, everyone knows who they are) 2 - it's a retirement plan when it's convenient to view it that way, a tax when it's not. Government views it as a tax when including it as tax revenue when calculating e.g. budget deficits. Right-wing pundits view it as a tax when talking about the size of big government. In terms of economic impact and incentive to work for wages I believe it acts mostly as a tax, just as you think incentives to invest are impacted by capital gains taxes etc. 3 - building a factory is not rent-seeking, saying your income from it should not be taxed is very transparently so and productivity growth increases surplus, it does not determine which factor of production the surplus accrues to. capital investment does not directly increase wages. labor supply and demand does. increasing productivity should usually shift labor demand higher, however trends in labor supply or structural factors that impact labor's bargaining position can sever the connection between productivity and labor demand (monopolies and monopsonies, import substitution, labor regs, labor's ability to organize etc.).