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"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 entertai
by 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 agoLooking 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 agoI 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 agoCapital 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 agoThis 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 agoFunding 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 agoI 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 agoI 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]