4 ms·

Replace "capital" with "investment" Or imagine the extreme, where capital gains was taxed 100%. No one would invest, we would all be essentially hunter gathere

by bko 5y ago

Replace "capital" with "investment" Or imagine the extreme, where capital gains was taxed 100%. No one would invest, we would all be essentially hunter gatherers. There would be no capital appreciation allowed so you would not be able to invest in anything in hopes of making a profit. Capital is how you build a better future

ilikecakeandpie 5y ago
"Or imagine the extreme, where capital gains was taxed 100%." This will likely never happen unless we have a true existential/societal collapse so why entertain this thought?
- bko 5y ago
  Looking at extremes is a useful mechanism to understanding the underlying factors affecting something. If you accept the fact that 100% capital gains tax would result in no investment and a 0% capital gains tax would mean a lot of investment, surely there is a link between cap gains and someone's willingness to investment. Especially considering that capital holders tend to be sophisticated and highly sensitive to incentives. So increasing the capital gains tax would lead to less investment.
  - BGthaOG 5y ago
    I agree that it is helpful but I also think it is more nuanced than that. What if there is a Goldilocks phenomenon? Someone with knowldege on the "life on Earth goldilocks with the Sun" could share their thoughts on such a comparison :)
  - qqqwerty 5y ago
    Capital gains tax is rarely if ever a major consideration in investment decisions. The vast majority of professional investors are interested in cash flows, not capital gains. It is just the speculators that live and die by capital gains, and they treat our markets like a casino. Disincentivizing their behavior would be a good thing.
  - chipotle_coyote 5y ago
    This kind of thought exercise is frequently misleading, though, because it relies on the assumptions that (1) effects are essentially linear and (2) that if something is provably bad at the extreme, it's bad at virtually any amount. If someone makes $10M capital gains through investment and "only" gets to take home $9M because of the 10% tax rate, they've still made nine million dollars. As long as that's objectively a good rate of return, there's little to no disincentive. The effects of a 10% tax vs. a 100% tax are obviously not linear.
    - bko 5y ago
      Funding doesn't work like that. It's not "we have to settle for 9% return instead of 10%". Everything is done at the margin. So if someone prices out a project where they can expect 10% return but now you tell them they are only going to get 9%, then the risk may not be worth it. You may not think like this, but I guarantee you the people in charge of allocating capital do think this way.
  - cycomanic 5y ago
    I disagree, looking at the extremes is often used as a scare tactic against certain changes. We can also say that if we tax work 100% nobody would work. The point of the OP was that work is generally more valuable to society than capital gains, but is taxed higher so there is a mismatch between the worth and how we tax it. Saying if we tax capital gains 100% nobody invests, does not add anything to the discussion as the same argument applies to work.
    - bko 5y ago
      > The point of the OP was that work is generally more valuable to society than capital gains Is it though? Capital build a better future. It's more forward thinking than just working. For instance, I want my children to forgo working and build capital for their future by getting an education. The foregone income would pay back more in the long run.
      - 8note 5y ago
        I wouldn't consider an education to be capital. It produces no value without you doing work, whereas capital produces value through others' work.
  - deleted 5y ago
    [deleted]
o___ 5y ago
This ignores externalities. For example, the investment could theoretically provide you a return via employment.
jcfrei 5y ago
The problem is that there isn't enough investment despite the corporations having huge piles of cash. The billions in stock buy backs in the US are a testament to this. Your argument is valid in a world where savings are scarce but we have a global savings glut.
- bko 5y ago
  > The problem is that there isn't enough investment despite the corporations having huge piles of cash. The billions in stock buy backs in the US are a testament to this Which is it? Are corporations sitting on huge piles of cash or are they using the cash for stock buy backs? US has relatively low savings that has gone down from about 10% in the 70s to a low of ~3% in mid 2000s to ~7% today (ignoring 2020 which shot up savings to 30+%). Compare that to China which has much higher growth which regularly saves ~36% https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/china/personal-savings https://tradingeconomics.com/china/personal-savings
8note 5y ago
I'd still invest. Its not capital gains you'd be receiving, it'd be a higher salary
andrepd 5y ago
All you're saying presupposes that "privatised capital" is the only possible way to organize an economy. In that sense it's justifying a system by arguing inside the system.

by bko 5y ago

ilikecakeandpie 5y ago

"Or imagine the extreme, where capital gains was taxed 100%." This will likely never happen unless we have a true existential/societal collapse so why entertain this thought?

bko 5y ago
Looking at extremes is a useful mechanism to understanding the underlying factors affecting something. If you accept the fact that 100% capital gains tax would result in no investment and a 0% capital gains tax would mean a lot of investment, surely there is a link between cap gains and someone's willingness to investment. Especially considering that capital holders tend to be sophisticated and highly sensitive to incentives. So increasing the capital gains tax would lead to less investment.
- BGthaOG 5y ago
  I agree that it is helpful but I also think it is more nuanced than that. What if there is a Goldilocks phenomenon? Someone with knowldege on the "life on Earth goldilocks with the Sun" could share their thoughts on such a comparison :)
- qqqwerty 5y ago
  Capital gains tax is rarely if ever a major consideration in investment decisions. The vast majority of professional investors are interested in cash flows, not capital gains. It is just the speculators that live and die by capital gains, and they treat our markets like a casino. Disincentivizing their behavior would be a good thing.
- chipotle_coyote 5y ago
  This kind of thought exercise is frequently misleading, though, because it relies on the assumptions that (1) effects are essentially linear and (2) that if something is provably bad at the extreme, it's bad at virtually any amount. If someone makes $10M capital gains through investment and "only" gets to take home $9M because of the 10% tax rate, they've still made nine million dollars. As long as that's objectively a good rate of return, there's little to no disincentive. The effects of a 10% tax vs. a 100% tax are obviously not linear.
  - bko 5y ago
    Funding doesn't work like that. It's not "we have to settle for 9% return instead of 10%". Everything is done at the margin. So if someone prices out a project where they can expect 10% return but now you tell them they are only going to get 9%, then the risk may not be worth it. You may not think like this, but I guarantee you the people in charge of allocating capital do think this way.
- cycomanic 5y ago
  I disagree, looking at the extremes is often used as a scare tactic against certain changes. We can also say that if we tax work 100% nobody would work. The point of the OP was that work is generally more valuable to society than capital gains, but is taxed higher so there is a mismatch between the worth and how we tax it. Saying if we tax capital gains 100% nobody invests, does not add anything to the discussion as the same argument applies to work.
  - bko 5y ago
    > The point of the OP was that work is generally more valuable to society than capital gains Is it though? Capital build a better future. It's more forward thinking than just working. For instance, I want my children to forgo working and build capital for their future by getting an education. The foregone income would pay back more in the long run.
    - 8note 5y ago
      I wouldn't consider an education to be capital. It produces no value without you doing work, whereas capital produces value through others' work.
- deleted 5y ago
  [deleted]

o___ 5y ago

This ignores externalities. For example, the investment could theoretically provide you a return via employment.

jcfrei 5y ago

The problem is that there isn't enough investment despite the corporations having huge piles of cash. The billions in stock buy backs in the US are a testament to this. Your argument is valid in a world where savings are scarce but we have a global savings glut.

bko 5y ago
> The problem is that there isn't enough investment despite the corporations having huge piles of cash. The billions in stock buy backs in the US are a testament to this Which is it? Are corporations sitting on huge piles of cash or are they using the cash for stock buy backs? US has relatively low savings that has gone down from about 10% in the 70s to a low of ~3% in mid 2000s to ~7% today (ignoring 2020 which shot up savings to 30+%). Compare that to China which has much higher growth which regularly saves ~36% https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/united-states/personal-savings https://tradingeconomics.com/china/personal-savings https://tradingeconomics.com/china/personal-savings

8note 5y ago

I'd still invest. Its not capital gains you'd be receiving, it'd be a higher salary

andrepd 5y ago

All you're saying presupposes that "privatised capital" is the only possible way to organize an economy. In that sense it's justifying a system by arguing inside the system.