10 ms·

> I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sen

> I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain I've been in finance long enough to believe that this is true. The problem is that the rich have the ability to take their income in alot of different ways. Tax income more, they'll take it as dividends. Tax dividends more, they'll take it as capital gains. Tax capital gains, they won't realize their capital gains until they can offset them with realized losses or they'll just get bank loans again't their stock holdings. Tax assets on death and they'll pass them o n in trusts. Some will move money off shore if they think they can get better returns that way. The problem is that no tax code can close all loop holes because you just can't foresee the creative ways people will out maneuver the tax code. Who would have thought 25 years ago that companies would buy other companies in different countries, not to acquire their products or markets, but to acquire their headquarters address to lower the tax paid in the US.

cmdrfred 10y ago
New tax code: Every time money changes hands it is taxed at X percent. Admittedly it is pretty simple example but my point is the loopholes are not on accident, it's by design.
- guard-of-terra 10y ago
  Will HFT be affected? Such people don't have to work in "money", they can pass shares or bonds or IOUs. Edit: fix stupidity
  - cmdrfred 10y ago
    Is HFT a net benefit to the average American? Does the average American even care? It seems to me that HFT prevents the average American from having any participation in the process. Find a new business model. Bonds have a cash value, tax that. If they start only using IOU's hit them for unauthorized creation of currency under the National Bank Act of 1863 and the Legal Tender Act of 1862.
- dragontamer 10y ago
  Yeah, except certain changing of money is considered unfair (ie: do you really want to be taxed if you give your friend a $50 in cash as a gift?), while other exchanging of money is considered good for the economy (ie: tax breaks on education-related expenses). The loopholes aren't there by design, but the complications of the taxes are in there by design. We wish to encourage education and business (both education and business expenses are deductable). We want to encourage renewable energy (solar taxes, net metering, etc. etc.). We want to encourage home ownership (mortgage deductible), charitable giving (church donation deductibles, etc. etc.). Taxes aren't complicated if you just fill out a 1040EZ. Taxes become complicated when you want to make sure you got all of the money back from deductibles and credits.
- JonFish85 10y ago
  Isn't that the way it already is, for the most part? Granted there are some things that aren't taxed this way (land & food come to mind), but for the most part, as money flows through the system, it is taxed. Buy a laptop for $1,000: * That comes out of money you've been paid, presumably, so in 43 US states, you've paid income tax already on it, and your company has paid payroll taxes. * 45 US states charge sales tax, so you pay sales tax. * If you paid with a credit card, a cut of your transaction goes to the credit card company, who pays taxes on their profits from that transaction. * The money is transferred to a bank account, and that bank is taxed on the profit that they make from that deposit. * The laptop company pays taxes on the profits that they make from that laptop (depending on where they're located, but if it was sold in the USA, they pay taxes). * Any shipping company involved moving that merchandise around paid taxes on the profits they made. * The company that brought the laptop into the USA pays the import taxes/tariffs associated with it. Just at a glance, every time something changed hands, it is taxed. And this doesn't get into things like excise tax, which are even more fun.
  - dragontamer 10y ago
    No. Gifts are taxed only if they are above $10,000. When you give money to your buddy to help pay for a meal, that isn't taxed (money changed hands, didn't it?). Furthermore, there are lots of taxes out there that do not involve the movement of money. Property Taxes are when a municipality agent comes to your property, they make up a number that "sounds right", and then start charging you for it. Furthermore, you aren't taxed when you buy or sell stocks or bonds. (Bernie Sanders wants to change that... cause he doesn't know how bad of an idea that is). You only are taxed on your GAINS: dividends and capital gains. If you buy a stock at $100, then sell it for $110, you are taxed 15% on $10. Not on the $100 or $110 individual transactions. (In contrast, the Financial Trade tax Bernie proposes would be a tax on both the $100 AND $110 transactions)
- dragontamer 10y ago
  The downvotes proof that "Wooosh", the sarcasm in your post was missed. He is demonstrating a point here people. "Simple taxes" are unfair. Taxes are complicated because real life is complicated, and we wish to be fair.
guard-of-terra 10y ago
How about taxing net worth of an individual? Calculated by market participants like they do today. Tax 0,1% of net worth of those whose net worth exceeds say $10 million. Such people have to get assessment of their net worth and then pay their tax. Of course they have incentive on doing slightly funny things with their net worth, but it is difficult to race them to the bottom in view of very large fines for crossing the line. Of course people will skip citizenship then; but as long as they do business within country it is solvable too.
- koolba 10y ago
  > How about taxing net worth of an individual? Calculated by market participants like they do today. Nobody in the USA has the balls to propose or implement this. It does make sense though. Why tax the guy making money? You should tax the guy hoarding it!
  - WalterBright 10y ago
    No wealthy people hoard money. It makes no fiscal sense to do it. It's all invested.
    - Retric 10y ago
      It's hard to call T-Bills an investment and many wealthy people have quite a few of them, or other investments designed to hold value with minimal ROI.
      - WalterBright 10y ago
        T-Bills are loaning money to the government, who then spends it. Again, there is no hoarding.
        Retric 10y ago
        Most T-Bills are simply servicing debt.
danharaj 10y ago
The fundamental conflict is that capitalism needs capital to move as freely as possible in order to grow while taxation requires control over the flow of capital. Governments balance these antagonistic requirements. The scale always dips in favor of capital until social cohesion starts to deteriorate.
- ArkyBeagle 10y ago
  The narrative that capital and government are natural enemies is deeply flawed. It didn't actually exist in quantity until the Hearst newspapers set it alight. Sure, you had the Wobblies and all, but they were considered lunatic fringe. Taxation is (ab)used, IMO, to promote normative ideas far too much. It should simply be a way to pay for government, nothing more, nothing less. If it could be deployed to promote normative ideas cheaply, and there was general consensus about what norms to promote it'd be different. But there's too much ardent BS from both sides to trust this mechanism - it would be much more honest to withdraw from it. This is doable, with tools from economics but using norms to derive other norms is a good way to end up with entangled and bizarro systems. Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. We have partial technocracy, with ideological shims rather than stern empirical underpinnings.
  - danharaj 10y ago
    Capital and government aren't enemies. Government is the thing that supports the relations that give capital power. However, government is in a balancing act between the working class and the capitalist class. Government is not in conflict with capital, government is the mediating body that balances the conflicts of capitalism. Calling the Wobblies the lunatic fringe is accepting propaganda uncritically. The labor movement, and the IWW was a key institution of the labor movement, was radical, but not fringe and has been persistently defamed for decades. > Taxation is (ab)used, IMO, to promote normative ideas far too much. It should simply be a way to pay for government, nothing more, nothing less. What is the role of government? Everything the government does is normative. > This is doable, with tools from economics but using norms to derive other norms is a good way to end up with entangled and bizarro systems. Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. We have partial technocracy, with ideological shims rather than stern empirical underpinnings. You are being far too optimistic believing there could be a technocracy without ideology. That kind of thinking only can give you a blind spot for your own ideology. Technocracy these days usually means the kind promulgated by neoliberalism, but it has also been pushed as part of authoritarian command economies like the USSR. What exactly is a "full" technocracy supposed to be? > Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. And irrelevant. Coase theorem only applies when transaction costs are minimal. They are not minimal in real life. They can't be. Coase theorem theoretically nice and practically useless. Coase's most substantial contribution to economic theory is how people organize in the presence of transaction costs, not how nice everything would be without them.
vasilipupkin 10y ago
This misses a crucial point: higher taxes by definition transfer resources from private investments to public investments. But we know that too much public investment is inefficient ( Brazil, Soviet Union, Venezuela, etc ). So we need to make just the right amount of public investment and no more, and leave the rest to be invested by private sector. Tax rates should be set accordingly
- MaysonL 10y ago
  So why did the economy grow so much better when the taxes were higher?
  - talmand 10y ago
    Was it possible the tax laws made the rate higher but allowed more ways to avoid paying the highest rates?
    - gadders 10y ago
      The higher the tax rate, the more worthwhile it is to expend effort to avoid them.
      - ArkyBeagle 10y ago
        It may also be that firms simply limit production. Since taxation is per firm, there are more firms. IOW, it may act as a brake on consolidation.
  - ArkyBeagle 10y ago
    1) Seeking "tax shelters" through investment. Very inefficient, however. 2) Factors other than the tax system. Correlation != causation, IOW. The U.S. had (something approximating) the only standing industrial infrastructure in the world post-WWII. It's also worth noting that the Kennedy tax cuts probably released a lot of pent-up economic energy. Similar tax cuts under different circumstances may not have the same effect - there had been widespread privaiton in the US from 1929 until the '50s, and this sort of acted as a "second stage" booster. 3) A general cultural civic-mindedness. I recently listened to a presentation of Devon Energy's CEO, and his father started a fund in energy and wanted it structred as a registered security , one of the first , and was told "you don't need to do that" by the SEC, but he persisted because he felt that was better. He then contrasted that now with people spending lots of money to avoid SEC regulation. That highlights the level of culture shift since then.
WalterBright 10y ago
The higher the marginal tax rate is, the more 'friction' there is moving money from a lower performing investment to a higher performing one. I.e. it produces less optimal investing, and that is less good for the economy. The other problem with higher tax rates on investment is one winds up with less money to invest. There's a non-trivial economic cost to that as well.
- wstrange 10y ago
  If the generated taxes flow back into the economy by building roads, bridges, etc. - that is considerably better than sitting in an offshore bank account.
  - ArkyBeagle 10y ago
    You'd have to construct a model where you guess the impact of the taxes vs. the impact of potential investment of the same money otherwise. I suspect this is harder than it looks because it isn't discussed much ( although it could be that people simply repeat their ideology rather than trying to make it empirical ). Not all bridges and roads are equally valuable. And in some areas, the dominant method of financing new roads is through tolls. I once estimated the number of man-years per day lost to congestion on I75 in Dallas around 1985 . It was quite the figure.
  - gadders 10y ago
    Yes, because central government always allocates money more efficiently and with less wastage.
- sharemywin 10y ago
  all tax is economic friction. But, no one has figured out better ways to fix certain problems with markets, like the free rider problem, monopolies, transaction side effects.
wstrange 10y ago
Surely by that logic we should give up trying to tax the rich altogether. The rich will always try to dodge taxes, but we can make it harder, say for example by spreading it out over different forms of income and consumption. We should also be looking at the international stage to diminish the value of tax havens, offshore companies etc. I think many countries are beginning to realise that ever lower taxation rates are a race to the bottom.
- gadders 10y ago
  Tax competition is a good thing, as it prevents governments from imposing excessive taxation. If we didn't have that, taxation rates would be a race to the top.
  - maerF0x0 10y ago
    an issue comes up though when someone is a net consumer in their country, but exports their taxability to some other country. its No big deal for CountryX to have tax rate of 1% on assets it has no liabilities against. Meanwhile CountryY (of origin) is spending lots.
- bko 10y ago
  Another option could be to charge a reasonable tax rate and make it as easy as possible to pay. This would reduce incentives to find ways to avoid tax, as those alternatives have costs as well. Wealthy people are the most mobile in society. I think it's good that countries compete on things like tax rates and good governance. No person or company should be beholden to any one government.
  - chipgap98 10y ago
    Is the tax rate not reasonable right now? Is there any evidence that lowering the tax rate would make companies less likely to try to avoid paying taxes?
    - jtuente 10y ago
chongli 10y ago
This is why land value tax makes the most sense. Land cannot be moved offshore, it cannot be converted into another form, it can only be bought, sold, leased, rented, or otherwise built upon. All of the things you do to land affect its (unimproved) value and this will be reflected in the tax rate. The hard part is figuring out how to calculate land values. The good news is that we can find an algorithm to agree on and then put it in force, avoiding all the jiggery-pokery that goes on with taxes and accounting regulations.
- toomuchtodo 10y ago
  You need tariffs for things that aren't land, things that can move.
  - chongli 10y ago
    Why? Why do you need to tax everything? Tax the land and the people who own the most valuable land pay the most taxes.
    - SilverCurve 10y ago
      That's not a good idea. If your tax rely heavily on land, you tax the farmers who create food, while tech companies such as Google and Facebook won't pay much.
      - bufordsharkley 10y ago
        This underestimates how valuable land is within cities, and how comparatively cheap agricultural land is. Worth reading: http://kaalvtn.blogspot.co.uk/2013/01/r-farmers-will-all-go-bankrupt.html http://kaalvtn.blogspot.co.uk/2013/01/r-farmers-will-all-go-...
- ArkyBeagle 10y ago
  Land values aren't particularly easy to calculate, but the people at your local tax assessor's office do it all the time anyway.
WalterBright 10y ago
> shy away from a sensible investment because of the tax rate on the potential gain This is refuted by the existence of tax free municipal bonds. Tax rates most definitely affect investment choices and strategies.
- ArkyBeagle 10y ago
  It's also refuted by the existence of Devon Energy: http://www.voicesofoklahoma.com/interview/nichols-larry/ http://www.voicesofoklahoma.com/interview/nichols-larry/
chishaku 10y ago
> The problem is that no tax code can close all loop holes It's really a question of political will. Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." If the US gov wanted to reform the tax code and enforce everyone paying their fair share, they most certainly could. The real issue, in my opinion, is that certain people have disproportionate influence in the legislative and rulemaking process, alas, we have the system we have.
- bko 10y ago
  > Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." Not sure if you're trying to be sarcastic but many consider the "war on terror" and the "war on drugs" complete failures and a poor allocation of resources.
  - ricksplat 10y ago
    It would be money better spent though surely!
  - chishaku 10y ago
    I agree. It reads like I'm positing them as models of success which wasn't my intent. I'm just saying that the US gov has tremendous financial resources. Take a small drop ($10B) of those misallocated resources and you can triple the IRS' annual enforcement budget.
    - zallarak 10y ago
      I'd hesitate to conclude that tripling the IRS budget would improve their level of enforcement.
- hsod 10y ago
  > Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." I was curious so I looked it up. 2016 IRS budget: $10.6 billion [0] 2015 DEA budget: $2.0 billion [1] [0] http://thehill.com/policy/finance/263767-irs-scores-year-end-funding-boost http://thehill.com/policy/finance/263767-irs-scores-year-end... [1] https://www.justice.gov/sites/default/files/jmd/legacy/2014/05/26/ba.pdf https://www.justice.gov/sites/default/files/jmd/legacy/2014/...
deleted 10y ago
[deleted]
wedowhatwedo 10y ago
"The problem is that no tax code can close all loop holes because you just can't foresee the creative ways people will out maneuver the tax code." What if this is the entire tax code: All US citizens must pay a tax of 40% of all the money they receive from any other entity for any reason. I haven't thought through the wording completely, but if we replace the convoluted tax code with a MUCH much simpler one, lots of these problems would go away.
- mikeash 10y ago
  Then they'll arrange to be paid in mansions and private jets and yachts.
  - ricksplat 10y ago
    That kind of thing is already taxed as "benefit in kind"
    - mikeash 10y ago
      Sure, but the proposed simplification eliminated that.
      - ricksplat 10y ago
        I think it could be generalised in this way without undermining the central principle.
        mikeash 10y ago
        Perhaps, but I bet other problems could be found. My general point is that while I'm sure a lot of the complexity is unnecessary, a decent amount of it is there for a good reason.
        ricksplat 10y ago
        I know, but playing along with the thought experiment, how do you account for things like VAT and service-specific levies? Property, income, inheritance, capital gains - all relate to the acquisition of value, so they fit the model in a distal sense.
tim333 10y ago
No systems perfect but you can keep adjusting it to keep up with tax avoiding innovations. Something should probably be done at the moment to make it harder for multinationals to claim all their profits were made in Ireland or wherever.
neffy 10y ago
Anyone who was already doing it? There's nothing new about offshore tax havens - cf Switzerland.

cmdrfred 10y ago

New tax code: Every time money changes hands it is taxed at X percent. Admittedly it is pretty simple example but my point is the loopholes are not on accident, it's by design.

guard-of-terra 10y ago
Will HFT be affected? Such people don't have to work in "money", they can pass shares or bonds or IOUs. Edit: fix stupidity
- cmdrfred 10y ago
  Is HFT a net benefit to the average American? Does the average American even care? It seems to me that HFT prevents the average American from having any participation in the process. Find a new business model. Bonds have a cash value, tax that. If they start only using IOU's hit them for unauthorized creation of currency under the National Bank Act of 1863 and the Legal Tender Act of 1862.
dragontamer 10y ago
Yeah, except certain changing of money is considered unfair (ie: do you really want to be taxed if you give your friend a $50 in cash as a gift?), while other exchanging of money is considered good for the economy (ie: tax breaks on education-related expenses). The loopholes aren't there by design, but the complications of the taxes are in there by design. We wish to encourage education and business (both education and business expenses are deductable). We want to encourage renewable energy (solar taxes, net metering, etc. etc.). We want to encourage home ownership (mortgage deductible), charitable giving (church donation deductibles, etc. etc.). Taxes aren't complicated if you just fill out a 1040EZ. Taxes become complicated when you want to make sure you got all of the money back from deductibles and credits.
JonFish85 10y ago
Isn't that the way it already is, for the most part? Granted there are some things that aren't taxed this way (land & food come to mind), but for the most part, as money flows through the system, it is taxed. Buy a laptop for $1,000: * That comes out of money you've been paid, presumably, so in 43 US states, you've paid income tax already on it, and your company has paid payroll taxes. * 45 US states charge sales tax, so you pay sales tax. * If you paid with a credit card, a cut of your transaction goes to the credit card company, who pays taxes on their profits from that transaction. * The money is transferred to a bank account, and that bank is taxed on the profit that they make from that deposit. * The laptop company pays taxes on the profits that they make from that laptop (depending on where they're located, but if it was sold in the USA, they pay taxes). * Any shipping company involved moving that merchandise around paid taxes on the profits they made. * The company that brought the laptop into the USA pays the import taxes/tariffs associated with it. Just at a glance, every time something changed hands, it is taxed. And this doesn't get into things like excise tax, which are even more fun.
- dragontamer 10y ago
  No. Gifts are taxed only if they are above $10,000. When you give money to your buddy to help pay for a meal, that isn't taxed (money changed hands, didn't it?). Furthermore, there are lots of taxes out there that do not involve the movement of money. Property Taxes are when a municipality agent comes to your property, they make up a number that "sounds right", and then start charging you for it. Furthermore, you aren't taxed when you buy or sell stocks or bonds. (Bernie Sanders wants to change that... cause he doesn't know how bad of an idea that is). You only are taxed on your GAINS: dividends and capital gains. If you buy a stock at $100, then sell it for $110, you are taxed 15% on $10. Not on the $100 or $110 individual transactions. (In contrast, the Financial Trade tax Bernie proposes would be a tax on both the $100 AND $110 transactions)
dragontamer 10y ago
The downvotes proof that "Wooosh", the sarcasm in your post was missed. He is demonstrating a point here people. "Simple taxes" are unfair. Taxes are complicated because real life is complicated, and we wish to be fair.

guard-of-terra 10y ago

How about taxing net worth of an individual? Calculated by market participants like they do today. Tax 0,1% of net worth of those whose net worth exceeds say $10 million. Such people have to get assessment of their net worth and then pay their tax. Of course they have incentive on doing slightly funny things with their net worth, but it is difficult to race them to the bottom in view of very large fines for crossing the line. Of course people will skip citizenship then; but as long as they do business within country it is solvable too.

koolba 10y ago
> How about taxing net worth of an individual? Calculated by market participants like they do today. Nobody in the USA has the balls to propose or implement this. It does make sense though. Why tax the guy making money? You should tax the guy hoarding it!
- WalterBright 10y ago
  No wealthy people hoard money. It makes no fiscal sense to do it. It's all invested.
  - Retric 10y ago
    It's hard to call T-Bills an investment and many wealthy people have quite a few of them, or other investments designed to hold value with minimal ROI.
    - WalterBright 10y ago
      T-Bills are loaning money to the government, who then spends it. Again, there is no hoarding.
      - Retric 10y ago
        Most T-Bills are simply servicing debt.

danharaj 10y ago

The fundamental conflict is that capitalism needs capital to move as freely as possible in order to grow while taxation requires control over the flow of capital. Governments balance these antagonistic requirements. The scale always dips in favor of capital until social cohesion starts to deteriorate.

ArkyBeagle 10y ago
The narrative that capital and government are natural enemies is deeply flawed. It didn't actually exist in quantity until the Hearst newspapers set it alight. Sure, you had the Wobblies and all, but they were considered lunatic fringe. Taxation is (ab)used, IMO, to promote normative ideas far too much. It should simply be a way to pay for government, nothing more, nothing less. If it could be deployed to promote normative ideas cheaply, and there was general consensus about what norms to promote it'd be different. But there's too much ardent BS from both sides to trust this mechanism - it would be much more honest to withdraw from it. This is doable, with tools from economics but using norms to derive other norms is a good way to end up with entangled and bizarro systems. Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. We have partial technocracy, with ideological shims rather than stern empirical underpinnings.
- danharaj 10y ago
  Capital and government aren't enemies. Government is the thing that supports the relations that give capital power. However, government is in a balancing act between the working class and the capitalist class. Government is not in conflict with capital, government is the mediating body that balances the conflicts of capitalism. Calling the Wobblies the lunatic fringe is accepting propaganda uncritically. The labor movement, and the IWW was a key institution of the labor movement, was radical, but not fringe and has been persistently defamed for decades. > Taxation is (ab)used, IMO, to promote normative ideas far too much. It should simply be a way to pay for government, nothing more, nothing less. What is the role of government? Everything the government does is normative. > This is doable, with tools from economics but using norms to derive other norms is a good way to end up with entangled and bizarro systems. Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. We have partial technocracy, with ideological shims rather than stern empirical underpinnings. You are being far too optimistic believing there could be a technocracy without ideology. That kind of thinking only can give you a blind spot for your own ideology. Technocracy these days usually means the kind promulgated by neoliberalism, but it has also been pushed as part of authoritarian command economies like the USSR. What exactly is a "full" technocracy supposed to be? > Just getting people to agree on Coase's interpretation of externalities seems nearly impossible. And irrelevant. Coase theorem only applies when transaction costs are minimal. They are not minimal in real life. They can't be. Coase theorem theoretically nice and practically useless. Coase's most substantial contribution to economic theory is how people organize in the presence of transaction costs, not how nice everything would be without them.

vasilipupkin 10y ago

This misses a crucial point: higher taxes by definition transfer resources from private investments to public investments. But we know that too much public investment is inefficient ( Brazil, Soviet Union, Venezuela, etc ). So we need to make just the right amount of public investment and no more, and leave the rest to be invested by private sector. Tax rates should be set accordingly

MaysonL 10y ago
So why did the economy grow so much better when the taxes were higher?
- talmand 10y ago
  Was it possible the tax laws made the rate higher but allowed more ways to avoid paying the highest rates?
  - gadders 10y ago
    The higher the tax rate, the more worthwhile it is to expend effort to avoid them.
    - ArkyBeagle 10y ago
      It may also be that firms simply limit production. Since taxation is per firm, there are more firms. IOW, it may act as a brake on consolidation.
- ArkyBeagle 10y ago
  1) Seeking "tax shelters" through investment. Very inefficient, however. 2) Factors other than the tax system. Correlation != causation, IOW. The U.S. had (something approximating) the only standing industrial infrastructure in the world post-WWII. It's also worth noting that the Kennedy tax cuts probably released a lot of pent-up economic energy. Similar tax cuts under different circumstances may not have the same effect - there had been widespread privaiton in the US from 1929 until the '50s, and this sort of acted as a "second stage" booster. 3) A general cultural civic-mindedness. I recently listened to a presentation of Devon Energy's CEO, and his father started a fund in energy and wanted it structred as a registered security , one of the first , and was told "you don't need to do that" by the SEC, but he persisted because he felt that was better. He then contrasted that now with people spending lots of money to avoid SEC regulation. That highlights the level of culture shift since then.

WalterBright 10y ago

The higher the marginal tax rate is, the more 'friction' there is moving money from a lower performing investment to a higher performing one. I.e. it produces less optimal investing, and that is less good for the economy. The other problem with higher tax rates on investment is one winds up with less money to invest. There's a non-trivial economic cost to that as well.

wstrange 10y ago
If the generated taxes flow back into the economy by building roads, bridges, etc. - that is considerably better than sitting in an offshore bank account.
- ArkyBeagle 10y ago
  You'd have to construct a model where you guess the impact of the taxes vs. the impact of potential investment of the same money otherwise. I suspect this is harder than it looks because it isn't discussed much ( although it could be that people simply repeat their ideology rather than trying to make it empirical ). Not all bridges and roads are equally valuable. And in some areas, the dominant method of financing new roads is through tolls. I once estimated the number of man-years per day lost to congestion on I75 in Dallas around 1985 . It was quite the figure.
- gadders 10y ago
  Yes, because central government always allocates money more efficiently and with less wastage.
sharemywin 10y ago
all tax is economic friction. But, no one has figured out better ways to fix certain problems with markets, like the free rider problem, monopolies, transaction side effects.

wstrange 10y ago

Surely by that logic we should give up trying to tax the rich altogether. The rich will always try to dodge taxes, but we can make it harder, say for example by spreading it out over different forms of income and consumption. We should also be looking at the international stage to diminish the value of tax havens, offshore companies etc. I think many countries are beginning to realise that ever lower taxation rates are a race to the bottom.

gadders 10y ago
Tax competition is a good thing, as it prevents governments from imposing excessive taxation. If we didn't have that, taxation rates would be a race to the top.
- maerF0x0 10y ago
  an issue comes up though when someone is a net consumer in their country, but exports their taxability to some other country. its No big deal for CountryX to have tax rate of 1% on assets it has no liabilities against. Meanwhile CountryY (of origin) is spending lots.
bko 10y ago
Another option could be to charge a reasonable tax rate and make it as easy as possible to pay. This would reduce incentives to find ways to avoid tax, as those alternatives have costs as well. Wealthy people are the most mobile in society. I think it's good that countries compete on things like tax rates and good governance. No person or company should be beholden to any one government.
- chipgap98 10y ago
  Is the tax rate not reasonable right now? Is there any evidence that lowering the tax rate would make companies less likely to try to avoid paying taxes?
  - jtuente 10y ago

chongli 10y ago

This is why land value tax makes the most sense. Land cannot be moved offshore, it cannot be converted into another form, it can only be bought, sold, leased, rented, or otherwise built upon. All of the things you do to land affect its (unimproved) value and this will be reflected in the tax rate. The hard part is figuring out how to calculate land values. The good news is that we can find an algorithm to agree on and then put it in force, avoiding all the jiggery-pokery that goes on with taxes and accounting regulations.

toomuchtodo 10y ago
You need tariffs for things that aren't land, things that can move.
- chongli 10y ago
  Why? Why do you need to tax everything? Tax the land and the people who own the most valuable land pay the most taxes.
  - SilverCurve 10y ago
    That's not a good idea. If your tax rely heavily on land, you tax the farmers who create food, while tech companies such as Google and Facebook won't pay much.
    - bufordsharkley 10y ago
      This underestimates how valuable land is within cities, and how comparatively cheap agricultural land is. Worth reading: http://kaalvtn.blogspot.co.uk/2013/01/r-farmers-will-all-go-bankrupt.html http://kaalvtn.blogspot.co.uk/2013/01/r-farmers-will-all-go-...
ArkyBeagle 10y ago
Land values aren't particularly easy to calculate, but the people at your local tax assessor's office do it all the time anyway.

WalterBright 10y ago

> shy away from a sensible investment because of the tax rate on the potential gain This is refuted by the existence of tax free municipal bonds. Tax rates most definitely affect investment choices and strategies.

ArkyBeagle 10y ago
It's also refuted by the existence of Devon Energy: http://www.voicesofoklahoma.com/interview/nichols-larry/ http://www.voicesofoklahoma.com/interview/nichols-larry/

chishaku 10y ago

> The problem is that no tax code can close all loop holes It's really a question of political will. Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." If the US gov wanted to reform the tax code and enforce everyone paying their fair share, they most certainly could. The real issue, in my opinion, is that certain people have disproportionate influence in the legislative and rulemaking process, alas, we have the system we have.

bko 10y ago
> Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." Not sure if you're trying to be sarcastic but many consider the "war on terror" and the "war on drugs" complete failures and a poor allocation of resources.
- ricksplat 10y ago
  It would be money better spent though surely!
- chishaku 10y ago
  I agree. It reads like I'm positing them as models of success which wasn't my intent. I'm just saying that the US gov has tremendous financial resources. Take a small drop ($10B) of those misallocated resources and you can triple the IRS' annual enforcement budget.
  - zallarak 10y ago
    I'd hesitate to conclude that tripling the IRS budget would improve their level of enforcement.
hsod 10y ago
> Just think about the amount of resources the US spends on the "war on terror" or the "war on drugs" compared to the "war on tax evasion." I was curious so I looked it up. 2016 IRS budget: $10.6 billion [0] 2015 DEA budget: $2.0 billion [1] [0] http://thehill.com/policy/finance/263767-irs-scores-year-end-funding-boost http://thehill.com/policy/finance/263767-irs-scores-year-end... [1] https://www.justice.gov/sites/default/files/jmd/legacy/2014/05/26/ba.pdf https://www.justice.gov/sites/default/files/jmd/legacy/2014/...

deleted 10y ago

[deleted]

wedowhatwedo 10y ago

"The problem is that no tax code can close all loop holes because you just can't foresee the creative ways people will out maneuver the tax code." What if this is the entire tax code: All US citizens must pay a tax of 40% of all the money they receive from any other entity for any reason. I haven't thought through the wording completely, but if we replace the convoluted tax code with a MUCH much simpler one, lots of these problems would go away.

mikeash 10y ago
Then they'll arrange to be paid in mansions and private jets and yachts.
- ricksplat 10y ago
  That kind of thing is already taxed as "benefit in kind"
  - mikeash 10y ago
    Sure, but the proposed simplification eliminated that.
    - ricksplat 10y ago
      I think it could be generalised in this way without undermining the central principle.
      - mikeash 10y ago
        Perhaps, but I bet other problems could be found. My general point is that while I'm sure a lot of the complexity is unnecessary, a decent amount of it is there for a good reason.
        ricksplat 10y ago
        I know, but playing along with the thought experiment, how do you account for things like VAT and service-specific levies? Property, income, inheritance, capital gains - all relate to the acquisition of value, so they fit the model in a distal sense.

tim333 10y ago

No systems perfect but you can keep adjusting it to keep up with tax avoiding innovations. Something should probably be done at the moment to make it harder for multinationals to claim all their profits were made in Ireland or wherever.

neffy 10y ago

Anyone who was already doing it? There's nothing new about offshore tax havens - cf Switzerland.