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I mean, there's several answers to this. The most fundamental one is this: capital is mobile, people are not. If you increase taxes on capital, it will flow t
by IkmoIkmo 8y ago
I mean, there's several answers to this.
The most fundamental one is this: capital is mobile, people are not.
If you increase taxes on capital, it will flow to a lower-tax jurisdiction relatively quickly. A decent legal system and financial infrastructure is necessary, but the hurdles aren't as great.
But if you increase taxes on salaries, people will be hesistant to leave for personal reasons (e.g. friends, family), cultural reasons, security reasons etc.
As such, tax competition between jurisdictions on capital is much more fierce than it is on labour. This is typically why you see lower taxes on capital.
The other reason is that labour tends to be viewed by part of the voter base as a normal tax, and capital as a double tax. i.e., if you earn $100k a year and save much of it after taxes, you now have capital to invest. And getting that capital taxed again is sometimes viewed as even less popular, a sort of tax ontop of tax, particularly as these wealthy people are more mobile and can more easily choose a lower tax jurisdiction.
As for the notion that his capital doesn't create jobs, I don't know if that is true. Fact is that if people like him withdrew their capital from the market, rather than invest it, you'd see many financially-constricted companies that would bin their expansion plans, cancel their investments in R&D, withdraw from new products and markets etc, and on the whole, generate far fewer jobs. It's essentially what the credit crisis looked like. The notion investments like his aren't creating jobs seems erroneous.
That doesn't mean I'm a fan of low capital taxes, by the way. But tax reform is incredibly complex because it requires essentially all countries around the world to work together, to give up some control over an important component of sovereignty (taxation), to restrict tax competition somewhat. There's been a lot of decent work in that regard already by the way in the past few years, with the worst aggressive tax planning and tax havens being dealt with (e.g. BEPS), which allows countries to implement more sensible taxes on capital without worry of their tax base shifting abroad.
- _up 8y agoPeople are not that mobile yet! A lot of people now wish to be more mobile and Upwork "thinks" half the existing jobs are being remote in 15 years. Though they have a huge incentive to be massively biased.
- NeedMoreTea 8y agoWasn't always so, even in my short lifetime, so I guess it's a nice sound bite. Capital controls were a normal, and expected, thing between countries. The US of A started throwing its weight around to break down Bretton Woods got us to now. (Oversimplified for brevity) Go back to pre WW1 and people were fully mobile with few countries having border controls or passport/visa requirements but most having capital controls.
- riazrizvi 8y ago> Capital doesn’t create jobs Actually he claims > Investing doesn’t create jobs So he’s denying the effect that a company can raise more capital if it has stronger demand for its shares. And he’s denying the incentive of stock for employee compensation, which consequently creates jobs just like cash. So I’m going to file this under “rich guy doesn’t understand the system that made him rich”. I also worked on Wall Street, and it doesn’t automatically imbue you with an understanding of all things economic. You have to explicitly study to gain expertise.
- sjg007 8y agoYou have to invest that money somewhere and the place with the best infrastructure to get what you need built matters more than the taxes you may pay on the profit.
- ergothus 8y agoWhile your logic seems sound, I feel like the last 10-20 years have involved simply not investing it. I have no particular explanation nor suggestion based off of that, but I know I've read a lot of articles about companies simply sitting in large bankrolls.
- RhysU 8y ago> But tax reform is incredibly complex because it requires essentially all countries around the world to work together, to give up some control over an important component of sovereignty (taxation), to restrict tax competition somewhat. Not a single country in such a consortium would permit industry-level collusion among private enterprises to similarly inflate prices. If it's disgusting if the airlines do it, it is disgusting if the West does it.