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Genuine question, as I am not well versed in finance: What else would those with capital do other than invest? That is, it seems like investment is clearly bet

Genuine question, as I am not well versed in finance: What else would those with capital do other than invest? That is, it seems like investment is clearly better than holding cash, regardless of the tax rate (with some caveats, e.g. not being in a deflationary economic state).

walshemj 8y ago
They invest in lower risk securities which leads to a bull market in bonds and guilts which has its own problems. It also stifles innovation and messes up pensioners as their income is based on gilt yields.
- munk-a 8y ago
  I don't understand why investors would do this, it seems like an unnatural response. If all capital gains are being taxes as income these investors would just voluntarily be choosing to make less money if they picked this strategy. Their strategy selection would equalize to being about what it is now but each cycle would yield them less money to reinvest and yield the government more money to invest. It can be your opinion that private investors are more efficient than the government but funding our "necessary services" (i.e. having an army, what not) is so deprived of income that it is being extracted through a regressive income tax. FYI, I'm all for cutting pork, but the income stream and what we end up spending that money on are two different issues.
- dragonwriter 8y ago
  > They invest in lower risk securities That's still investing and the idea that higher taxes on capital income would reduce yield targets for capital investments is backwards.
- icedchai 8y ago
  Seems like they’d need a higher return due to higher tax.
munk-a 8y ago
Those with capital would still be best off investing in some manner. Tax loop holes in other countries may cause some expatriation of that investment but if those are closed then investment will continue but most money will be taken out of the economy during the investment cycle. Assuming this doesn't just lead to the government taking in massive amounts of money and not using it this would allow income tax rates to be reduced and spur consumer spending. It's a pretty simple issue of a high pressure leaky container, jam a wedge in one leak and the other leaks need to contribute more if you want to maintain the same amount of water coming out. Simplify the tax code and we even end up losing less money to trying to remember where all the leaks are.
- candiodari 8y ago
  They would indeed invest it, but they would demand dividends be paid in natura. There would be a type of business where, you invest 5%, you become a director there. With free use of a yacht, private plane, car (these businesses come in all sizes, you essentially get 5% from what would be dividends to be spent as you wish as long as accounting can make it work), a hotel/travel budget, ... all these would no longer be personal expenditures, but business expenses. In actuality these businesses exist (even much more dirty: in practice, bank employees on occasion demand they be offered this, in trade for not sabotaging a loan. This is pretty common practice). But even "fairly", with actual investments, these businesses exist. And no, this is not illegal, nor do you want to make this illegal.
  - gamegoblin 8y ago
    Doesn't the IRS require reporting and tax payment for these non-cash fringe benefits?
    - candiodari 8y ago
      Sure but they're never 100% fringe benefits. A director "has" to drive around meeting people. Customers/partners, hell even IRS representatives. So the car is taxed at 10%, because only 10% is used privately. Even that doesn't help because "taxed" in this case is a big word for "taken out of what the company pays the person". Which means the company pays in situations where the person controls the company, for obvious reasons.

walshemj 8y ago

They invest in lower risk securities which leads to a bull market in bonds and guilts which has its own problems. It also stifles innovation and messes up pensioners as their income is based on gilt yields.

munk-a 8y ago
I don't understand why investors would do this, it seems like an unnatural response. If all capital gains are being taxes as income these investors would just voluntarily be choosing to make less money if they picked this strategy. Their strategy selection would equalize to being about what it is now but each cycle would yield them less money to reinvest and yield the government more money to invest. It can be your opinion that private investors are more efficient than the government but funding our "necessary services" (i.e. having an army, what not) is so deprived of income that it is being extracted through a regressive income tax. FYI, I'm all for cutting pork, but the income stream and what we end up spending that money on are two different issues.
dragonwriter 8y ago
> They invest in lower risk securities That's still investing and the idea that higher taxes on capital income would reduce yield targets for capital investments is backwards.
icedchai 8y ago
Seems like they’d need a higher return due to higher tax.

munk-a 8y ago

Those with capital would still be best off investing in some manner. Tax loop holes in other countries may cause some expatriation of that investment but if those are closed then investment will continue but most money will be taken out of the economy during the investment cycle. Assuming this doesn't just lead to the government taking in massive amounts of money and not using it this would allow income tax rates to be reduced and spur consumer spending. It's a pretty simple issue of a high pressure leaky container, jam a wedge in one leak and the other leaks need to contribute more if you want to maintain the same amount of water coming out. Simplify the tax code and we even end up losing less money to trying to remember where all the leaks are.

candiodari 8y ago
They would indeed invest it, but they would demand dividends be paid in natura. There would be a type of business where, you invest 5%, you become a director there. With free use of a yacht, private plane, car (these businesses come in all sizes, you essentially get 5% from what would be dividends to be spent as you wish as long as accounting can make it work), a hotel/travel budget, ... all these would no longer be personal expenditures, but business expenses. In actuality these businesses exist (even much more dirty: in practice, bank employees on occasion demand they be offered this, in trade for not sabotaging a loan. This is pretty common practice). But even "fairly", with actual investments, these businesses exist. And no, this is not illegal, nor do you want to make this illegal.
- gamegoblin 8y ago
  Doesn't the IRS require reporting and tax payment for these non-cash fringe benefits?
  - candiodari 8y ago
    Sure but they're never 100% fringe benefits. A director "has" to drive around meeting people. Customers/partners, hell even IRS representatives. So the car is taxed at 10%, because only 10% is used privately. Even that doesn't help because "taxed" in this case is a big word for "taken out of what the company pays the person". Which means the company pays in situations where the person controls the company, for obvious reasons.