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I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather t

I think what we're really upset about when it comes to rich people making a lot of money through investments is not that interest isn't taxed more, but rather that they had such a high (non-investment) income in the first place. In fact, I think there should be zero investment taxes. My reasoning goes like this: If I would rather have two coconuts seven years from now than one coconut today, and I'm willing to find someone to sign a contract to make that trade with me, why do I deserve to be penalized more than someone who would rather have just one coconut today? This is in effect what capital gains taxes are. Penalizing future consumption in preference to current consumption. But there's no reason we as a society should prefer one over the other.

Retric 8y ago
Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.
- briandear 8y ago
  So a teacher’s 401k is money they don’t really need? Because that’s an investment too you know.
- bzbarsky 8y ago
  This is an incredibly anti-savings policy, given that we have central banks ensuring positive inflation (except in Japan) and capital gains are calculated in nominal, not real terms. In other words, if you just hold some money for a few years and it doesn't lose value (interest rate equals inflation), you _already_ owe tax on it. That's just broken. If we did capital gains in inflation-adjusted dollars, the situation would be somewhat different.
  - Retric 8y ago
    The world is flush capital which is driving down returns. We don't need to try and increase it as people with a surplus are always going to invest it.
    - bzbarsky 8y ago
      I agree there's a problem there: we seem to have more capital than we need, yet we also have less savings (in the sense of people deferring consumption) than individuals need to have a comfortable retirement, for example. I have yet to see good solutions for this problem.
- nybble41 8y ago
  > Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified. Indeed, the "root argument" in favor of taxation is fundamentally all about "having other people pay more so that I pay less". That being the case, why did you start out by saying that "investments should have much higher tax rates", only to contradict yourself later?
  - Retric 8y ago
    Because I was simply coming up with a counter argument not advocating for a position. I could support the fist line by saying investments are taxed at below average rates including loans (bonds) which are not double taxed. And a flat tax without any form of tax breaks is the only fair solution. But, again not trying to support a position just disappointed with the way taxes are discussed. Arguably all people deserve a tax break, but the only way to do that is reduce spending.
colanderman 8y ago
Your post belies one of the most harmful stereotypes that many rich and right-leaning people hold, that the poor would simply "rather have just one coconut today", and it's due only to their own short-sightedness and lack of impulse control that that they are poor. For many people, it's not a fucking choice. It's eat your last coconut or starve until your next paycheck. The recent story on HN about performance on the "marshmallow test" being predicated on being born rich is relevant: https://www.theatlantic.com/family/archive/2018/06/marshmallow-test/561779/ https://www.theatlantic.com/family/archive/2018/06/marshmall... Your point about "penalizing future consumption in preference to current consumption" makes no sense either. Capital gains tax could be 99% and (modulo inflation) you'd still be ahead by investing, so I don't get your point. God forbid someone who earns their income from investing rather than manual labor should have to pay taxes on it.
- bluecalm 8y ago
  You wouldn't be ahead because there is risk in investing. The biggest capital gain tax the less sense it makes to invest. That's why the capital gain tax rate is different than income tax. Making capital gain tax progressive is a recipe for not getting any more investment from private citizens.
  - colanderman 8y ago
    Since when do you pay taxes on capital losses?
    - briandear 8y ago
      You don’t. But you lose the money. Risking $10 to make $10 is much different that risking $10 to make $0.10. You are more willing to invest at 1:1 odds than you are 100:1. Especially since the odds actually don’t reflect the actual risk of the investment itself. 100:1 on a sure thing is better than 1:1 on something that is very high risk. However, no investment is a sure thing. There is a non-zero level of risk in any investment, so if the payoff doesn’t match the risk, you simply will put the money under your mattress.
  - 8y ago
SomewhatLikely 8y ago
The problem comes when you are contributing labor to the underlying asset. In this case you can forgo wages in lieu of capital and that labor should be taxed the same as anyone else's.

Retric 8y ago

Alternatively, investments should have much higher tax rates. If someone invested money then they clearly did not need it, thus they need returns even less. Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified.

briandear 8y ago
So a teacher’s 401k is money they don’t really need? Because that’s an investment too you know.
bzbarsky 8y ago
This is an incredibly anti-savings policy, given that we have central banks ensuring positive inflation (except in Japan) and capital gains are calculated in nominal, not real terms. In other words, if you just hold some money for a few years and it doesn't lose value (interest rate equals inflation), you _already_ owe tax on it. That's just broken. If we did capital gains in inflation-adjusted dollars, the situation would be somewhat different.
- Retric 8y ago
  The world is flush capital which is driving down returns. We don't need to try and increase it as people with a surplus are always going to invest it.
  - bzbarsky 8y ago
    I agree there's a problem there: we seem to have more capital than we need, yet we also have less savings (in the sense of people deferring consumption) than individuals need to have a comfortable retirement, for example. I have yet to see good solutions for this problem.
nybble41 8y ago
> Really, you can try to justify any tax policy by reframing the question, but the root argument breaks down to having other people pay more so I pay less which is never really justified. Indeed, the "root argument" in favor of taxation is fundamentally all about "having other people pay more so that I pay less". That being the case, why did you start out by saying that "investments should have much higher tax rates", only to contradict yourself later?
- Retric 8y ago
  Because I was simply coming up with a counter argument not advocating for a position. I could support the fist line by saying investments are taxed at below average rates including loans (bonds) which are not double taxed. And a flat tax without any form of tax breaks is the only fair solution. But, again not trying to support a position just disappointed with the way taxes are discussed. Arguably all people deserve a tax break, but the only way to do that is reduce spending.

colanderman 8y ago

Your post belies one of the most harmful stereotypes that many rich and right-leaning people hold, that the poor would simply "rather have just one coconut today", and it's due only to their own short-sightedness and lack of impulse control that that they are poor. For many people, it's not a fucking choice. It's eat your last coconut or starve until your next paycheck. The recent story on HN about performance on the "marshmallow test" being predicated on being born rich is relevant: https://www.theatlantic.com/family/archive/2018/06/marshmallow-test/561779/ https://www.theatlantic.com/family/archive/2018/06/marshmall... Your point about "penalizing future consumption in preference to current consumption" makes no sense either. Capital gains tax could be 99% and (modulo inflation) you'd still be ahead by investing, so I don't get your point. God forbid someone who earns their income from investing rather than manual labor should have to pay taxes on it.

bluecalm 8y ago
You wouldn't be ahead because there is risk in investing. The biggest capital gain tax the less sense it makes to invest. That's why the capital gain tax rate is different than income tax. Making capital gain tax progressive is a recipe for not getting any more investment from private citizens.
- colanderman 8y ago
  Since when do you pay taxes on capital losses?
  - briandear 8y ago
    You don’t. But you lose the money. Risking $10 to make $10 is much different that risking $10 to make $0.10. You are more willing to invest at 1:1 odds than you are 100:1. Especially since the odds actually don’t reflect the actual risk of the investment itself. 100:1 on a sure thing is better than 1:1 on something that is very high risk. However, no investment is a sure thing. There is a non-zero level of risk in any investment, so if the payoff doesn’t match the risk, you simply will put the money under your mattress.
- 8y ago

SomewhatLikely 8y ago

The problem comes when you are contributing labor to the underlying asset. In this case you can forgo wages in lieu of capital and that labor should be taxed the same as anyone else's.