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> not on income or cap gains Why does it matter how it is taxed? If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if th

> not on income or cap gains Why does it matter how it is taxed? If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if the capital is taxed at a rate of 1.15%. I think the biggest injustice is that return of capital isn't taxed at the same rate as income from labor. Someone who earns $100'000 from labor and $50'000 from return on capital should be taxed at the same rate as someone who earns 150'000 from labor.

eutropia 7y ago
Taxing capital incentivizes putting it to work. If you only tax gains then people can endlessly horde wealth. Taxing the wealth itself makes hording unappealing... I think.
- xorfish 7y ago
  But hoarding wealth isn't a problem for inequality. It is that capital can be used to generate income. Inflation is the process that incentivizes capital to be put to work.
  - maxsilver 7y ago
    > But hoarding wealth isn't a problem for inequality. It absolutely can be, especially for wealth that is finite. (Like land for housing) > Inflation is the process that incentivizes capital to be put to work. Does it though? Inflation mostly just punishes labor alone, labor feels the effects of inflation far more severely than anyone else. With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. Inflation can't currently incentivize capital to be put to work, because capital just sitting doing nothing already far out-earns any loss from inflation. And for inflation to be strong enough to actually incentivize capital to be used, you'd have to bump it to astronomical heights (like say, 15-25%), at which point you've completely obliterated all wage-earning people's lives. This is why many well-respected people advocate for a wealth tax. In a perfect world, inflation would be exactly 0, and a strong punitive wealth tax would discourage greedy people from hoarding wealth.
    - Matticus_Rex 7y ago
      The market already has a mechanism for incentivizing putting capital to work, though. If something is held off the market ("hoarded", in your terminology), it reduces supply, and the returns in that area go up, making it more attractive to do something with it. For money-wealth, the outlook is even better. If Scrooge McDuck, puts all his money into his basement so he can swim in them, he has removed those from the supply and increases the value of everyone else's money while he holds it off the market.
    - AnimalMuppet 7y ago
      > With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. I remember the late 1970s, when inflation was 14%, and sitting on cash paid 5%. There have been times when your "just sit on cash" approach meant losing your shirt.
    - ledauphin 7y ago
      I'm not an expert, but what you describe as "capital sitting doing nothing" is, presumably, capital invested in some kind of market index? In which case it's by definition not "sitting doing nothing", right? Unless you were referring to capital in the sense of owned non-market property that appreciates with time? Land/property values are a major topic of discussion throughout this thread for sure. Just trying to make sure I'm following the thread of the argument here.
      - mensetmanusman 7y ago
        You are correct, it isn’t ever ‘doing nothing’ The issue is that the returns to the investor far outweigh the gains in wages etc. to the people actually doing the work to increase prosperity.
- Mirioron 7y ago
  But taxing capital is not possible and probably a bad idea. This will require you to list everything you own to the government who will then evaluate the worth of it. I really can't think of much else that's a worse violation of privacy. It will also make owning something expensive a bad idea, because you'll have to pay to own it. In fact, can you even say that you own it at that point? Aren't you basically renting it from the government instead? Thinking more about it, I'm surprised that totalitarian systems didn't have a wealth tax.
  - ConfuciusSay02 7y ago
    >I'm surprised that totalitarian systems didn't have a wealth tax. In addition to service, a serf was required to pay certain taxes and fees. Taxes were based on the assessed value of his lands and holdings. https://en.wikipedia.org/wiki/Serfdom https://en.wikipedia.org/wiki/Serfdom
carlob 7y ago
Before income tax, nobody had any idea about who was making what. Fast forward 100 years and we still have no idea about who holds how much capital. Even if you disagree on a universal wealth tax (just like we have for income) there is an argument to be made that it is important information to policymakers. Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax. Moreover I think wealth can be used in ways which don't necessarily produce an income: for influence, as collateral...
- xorfish 7y ago
  > Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax. But someone who earns more will also have a higher marginal tax rate. There is probably better risk tolerance once you have a net worth above e few months of expenses. But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k.
  - carlob 7y ago
    > But someone who earns more will also have a higher marginal tax rate. Not currently on capital > But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k. That's exactly what Piketty has shown to be false. If you look at stuff like endowments and sovereign funds you'll see gains that are nowhere near what's possible even for funds that have $100M in capital. There are economies of scale involved here, both in diversification and in management. Moreover some markets are not even available to investors who are not larger than a certain threshold.
    - sokoloff 7y ago
      Long term capital gains taxes in the US currently have a progressive (bracketed) structure. They start at 0%, go to 15%, then 20%, then 23.8%. Short term capital gains are taxed at ordinary income rates, which also has a progressive rate structure as GP claimed.
sooheon 7y ago
> I think the biggest injustice is that return of capital isn't taxed at the same rate as income from labor. Almost there. One step further and you’ll realize the root injustice is that rent is taxed less than either returns to capital or labor. Compensation for labor and returns to productive risk bearing or entrepreneurship should not be taxed. Rent seeking, where profit is guaranteed disproportionate to investment of labor or capital should be taxed out of existence. It’s crucial to disambiguate land and capital (in the economic sense: https://en.m.wikipedia.org/wiki/Factor_payments https://en.m.wikipedia.org/wiki/Factor_payments) when speaking about concentration of wealth.
aqme28 7y ago
Note: capital gains taxes are closer to around 15%, not 30%. They're also only realized when they're liquidated, which makes a big difference.
- xorfish 7y ago
  I know, that is why I said that it is an injustice that return on capital isn't taxed the same as income from labor
AnimalMuppet 7y ago
> If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if the capital is taxed at a rate of 1.15%. But what if capital earns a return of 0%. Then you have the same effect as if the capital is taxed at a rate of... 0%. That's why it matters how it is taxed.

eutropia 7y ago

Taxing capital incentivizes putting it to work. If you only tax gains then people can endlessly horde wealth. Taxing the wealth itself makes hording unappealing... I think.

xorfish 7y ago
But hoarding wealth isn't a problem for inequality. It is that capital can be used to generate income. Inflation is the process that incentivizes capital to be put to work.
- maxsilver 7y ago
  > But hoarding wealth isn't a problem for inequality. It absolutely can be, especially for wealth that is finite. (Like land for housing) > Inflation is the process that incentivizes capital to be put to work. Does it though? Inflation mostly just punishes labor alone, labor feels the effects of inflation far more severely than anyone else. With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. Inflation can't currently incentivize capital to be put to work, because capital just sitting doing nothing already far out-earns any loss from inflation. And for inflation to be strong enough to actually incentivize capital to be used, you'd have to bump it to astronomical heights (like say, 15-25%), at which point you've completely obliterated all wage-earning people's lives. This is why many well-respected people advocate for a wealth tax. In a perfect world, inflation would be exactly 0, and a strong punitive wealth tax would discourage greedy people from hoarding wealth.
  - Matticus_Rex 7y ago
    The market already has a mechanism for incentivizing putting capital to work, though. If something is held off the market ("hoarded", in your terminology), it reduces supply, and the returns in that area go up, making it more attractive to do something with it. For money-wealth, the outlook is even better. If Scrooge McDuck, puts all his money into his basement so he can swim in them, he has removed those from the supply and increases the value of everyone else's money while he holds it off the market.
  - AnimalMuppet 7y ago
    > With enough capital (the amount anyone 'hoarding wealth' already has), the capital automatically buys itself out of any problem of inflation, because the returns to sit on that cash are routinely higher than inflation itself is. I remember the late 1970s, when inflation was 14%, and sitting on cash paid 5%. There have been times when your "just sit on cash" approach meant losing your shirt.
  - ledauphin 7y ago
    I'm not an expert, but what you describe as "capital sitting doing nothing" is, presumably, capital invested in some kind of market index? In which case it's by definition not "sitting doing nothing", right? Unless you were referring to capital in the sense of owned non-market property that appreciates with time? Land/property values are a major topic of discussion throughout this thread for sure. Just trying to make sure I'm following the thread of the argument here.
    - mensetmanusman 7y ago
      You are correct, it isn’t ever ‘doing nothing’ The issue is that the returns to the investor far outweigh the gains in wages etc. to the people actually doing the work to increase prosperity.
Mirioron 7y ago
But taxing capital is not possible and probably a bad idea. This will require you to list everything you own to the government who will then evaluate the worth of it. I really can't think of much else that's a worse violation of privacy. It will also make owning something expensive a bad idea, because you'll have to pay to own it. In fact, can you even say that you own it at that point? Aren't you basically renting it from the government instead? Thinking more about it, I'm surprised that totalitarian systems didn't have a wealth tax.
- ConfuciusSay02 7y ago
  >I'm surprised that totalitarian systems didn't have a wealth tax. In addition to service, a serf was required to pay certain taxes and fees. Taxes were based on the assessed value of his lands and holdings. https://en.wikipedia.org/wiki/Serfdom https://en.wikipedia.org/wiki/Serfdom

carlob 7y ago

Before income tax, nobody had any idea about who was making what. Fast forward 100 years and we still have no idea about who holds how much capital. Even if you disagree on a universal wealth tax (just like we have for income) there is an argument to be made that it is important information to policymakers. Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax. Moreover I think wealth can be used in ways which don't necessarily produce an income: for influence, as collateral...

xorfish 7y ago
> Other than that Piketty argues that larger wealth means larger returns (per unit capital) and that is a very strong argument against a flat capital gains tax. But someone who earns more will also have a higher marginal tax rate. There is probably better risk tolerance once you have a net worth above e few months of expenses. But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k.
- carlob 7y ago
  > But someone who earns more will also have a higher marginal tax rate. Not currently on capital > But someone with $10M will be able to get the same risk adjusted return as someone who has a net worth of $100k. That's exactly what Piketty has shown to be false. If you look at stuff like endowments and sovereign funds you'll see gains that are nowhere near what's possible even for funds that have $100M in capital. There are economies of scale involved here, both in diversification and in management. Moreover some markets are not even available to investors who are not larger than a certain threshold.
  - sokoloff 7y ago
    Long term capital gains taxes in the US currently have a progressive (bracketed) structure. They start at 0%, go to 15%, then 20%, then 23.8%. Short term capital gains are taxed at ordinary income rates, which also has a progressive rate structure as GP claimed.

sooheon 7y ago

> I think the biggest injustice is that return of capital isn't taxed at the same rate as income from labor. Almost there. One step further and you’ll realize the root injustice is that rent is taxed less than either returns to capital or labor. Compensation for labor and returns to productive risk bearing or entrepreneurship should not be taxed. Rent seeking, where profit is guaranteed disproportionate to investment of labor or capital should be taxed out of existence. It’s crucial to disambiguate land and capital (in the economic sense: https://en.m.wikipedia.org/wiki/Factor_payments https://en.m.wikipedia.org/wiki/Factor_payments) when speaking about concentration of wealth.

aqme28 7y ago

Note: capital gains taxes are closer to around 15%, not 30%. They're also only realized when they're liquidated, which makes a big difference.

xorfish 7y ago
I know, that is why I said that it is an injustice that return on capital isn't taxed the same as income from labor

AnimalMuppet 7y ago

> If the capital returns 4% and is taxed at a 30% rate, you will have the same effect as if the capital is taxed at a rate of 1.15%. But what if capital earns a return of 0%. Then you have the same effect as if the capital is taxed at a rate of... 0%. That's why it matters how it is taxed.