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I'm not an economist. I understand the theory that capital gains being taxed at a lower rate is that we want to encourage investment - putting capital where it

I'm not an economist. I understand the theory that capital gains being taxed at a lower rate is that we want to encourage investment - putting capital where it will grow more jobs/more needs being met by companies. I also understand the theory that this is nice in theory but isn't describing the actual results. And while I _believe_ that's a problem, what I don't have is an understanding of the data. Like with HFT, I can react with my gut, but I'd be happier if I could understand a bit more about whether the system is working or not, and if not, where does it bend? What's the equivalent of the Laffer Curve for capital gains? Are there any explanations that aren't overly preachy of one way or another that can explain to someone without the econ background?

zozbot123 8y ago
As a general rule, taxation of returns on savings is always double taxation. Money today is not worth the same as an equal amount of money five years from now, or an equal amount of money after it has been invested in a risky venture with a substantial chance of losses. Returns from capital are, in expectation, a compensating differential for such differences in value. Now, this is not to say that some taxation on savings isn't sometimes appropriate; for instance, some forms of investment are non-transparent and might be used to shield earned income from taxes that should bear on it; also, higher-income folks tend to save more and to choose riskier investments that yield higher expected returns; so returns correlate with ability to pay in a way that's worthy of note because it doesn't impact incentives too much. Taxes that bear on some peculiar assets, such as the land-value of urban real estate, EM spectrum rights, or investment into highly-polluting industries, also don't adversely affect incentives. However, existing taxation on capital appears broadly appropriate to take advantage of these things; the bulk of taxes should still fall on tax bases other than savings and investment, such as the portion of income that's not saved but spent on non-baseline consumption of goods and services.
- dragonwriter 8y ago
  > As a general rule, taxation of returns on savings is always double taxation. Not any more than any other taxation. > Money today is not worth the same as an equal amount of money five years from now That's a good reason for inflation adjusting basis values when computing gains, but it's not a good argument for not taxing them, or for taxing them at a preferential rate. > an equal amount of money after it has been invested in a risky venture with a substantial chance of losses. The loss either happens or it doesn't, once it has or hasn't, what is left is the same as the same amount of money acquired by other means.

zozbot123 8y ago

As a general rule, taxation of returns on savings is always double taxation. Money today is not worth the same as an equal amount of money five years from now, or an equal amount of money after it has been invested in a risky venture with a substantial chance of losses. Returns from capital are, in expectation, a compensating differential for such differences in value. Now, this is not to say that some taxation on savings isn't sometimes appropriate; for instance, some forms of investment are non-transparent and might be used to shield earned income from taxes that should bear on it; also, higher-income folks tend to save more and to choose riskier investments that yield higher expected returns; so returns correlate with ability to pay in a way that's worthy of note because it doesn't impact incentives too much. Taxes that bear on some peculiar assets, such as the land-value of urban real estate, EM spectrum rights, or investment into highly-polluting industries, also don't adversely affect incentives. However, existing taxation on capital appears broadly appropriate to take advantage of these things; the bulk of taxes should still fall on tax bases other than savings and investment, such as the portion of income that's not saved but spent on non-baseline consumption of goods and services.

dragonwriter 8y ago
> As a general rule, taxation of returns on savings is always double taxation. Not any more than any other taxation. > Money today is not worth the same as an equal amount of money five years from now That's a good reason for inflation adjusting basis values when computing gains, but it's not a good argument for not taxing them, or for taxing them at a preferential rate. > an equal amount of money after it has been invested in a risky venture with a substantial chance of losses. The loss either happens or it doesn't, once it has or hasn't, what is left is the same as the same amount of money acquired by other means.