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> Practically nobody during the inflation scare proposed raising taxes to destroy cash. They did though, they just don't call it that because it's implicit in

> Practically nobody during the inflation scare proposed raising taxes to destroy cash. They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action. Capital gains tax includes a tax on inflation. If you own a $100 asset and its real value doesn't change but you have 10% inflation, its nominal value is now $110 and the next time you do a transaction the government will call this a $10 capital gain and collect tax on it, even though the real gain was $0.

chii 2y ago
and that's why it's valid to have a capital gains tax discount. It prevents you from making a loss in real terms due to taxes.
- AnthonyMouse 2y ago
  It doesn't actually do that though. It doesn't in the example above, for example -- the real increase in value is zero so any capital gains tax collected is a loss in real terms. And it would be trivial to fix it; just adjust the tax basis for inflation when calculating the capital gain. But reasonable tax policy is not a thing that we have.
  - chii 2y ago
    > just adjust the tax basis for inflation when calculating the capital gain. which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. Not to mention that it takes a lot more effort to do this. Simply discounting capital gains tax is sufficient as a simplification.
    - AnthonyMouse 2y ago
      > which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. The BLS publishes the inflation numbers monthly. Higher granularity than that is negligible and hardly even measurable; the main issue is when you hold something for many years and the rate of inflation is in the double or triple digits. Also, this stuff is already being done by computers. The computer needs the dates to determine if it's a short-term or long-term capital gain so it can use them to calculate the inflation using the official numbers. > Simply discounting capital gains tax is sufficient as a simplification. The difference is enormous. If you hold something for 18 months and the inflation was 6%, you get the same discount as if you hold it for 50 years and the inflation was 600%.
JumpCrisscross 2y ago
> They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action Those gains also fuel wealth effects. Our tax take as a fraction of GDP has been flat since WWII [1]. An MMT anti-inflationary cash-destruction programme would involve hundreds of billions, perhaps trillions, of borrowing or tax increases (with no increase in spending). That didn't happen for obvious reasons. [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S
- AnthonyMouse 2y ago
  "As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue by 10% and caused 10% more nominal dollars to be removed from the economy. The part that didn't happen is that the government then needs to not spend that extra money, or else it goes back into the economy and continues inflating prices.
  - ffgjgf1 2y ago
    What exactly is the government spending that money on makes bug difference on inflation, though
    - AnthonyMouse 2y ago
      That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
      - ffgjgf1 2y ago
        > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.

chii 2y ago

and that's why it's valid to have a capital gains tax discount. It prevents you from making a loss in real terms due to taxes.

AnthonyMouse 2y ago
It doesn't actually do that though. It doesn't in the example above, for example -- the real increase in value is zero so any capital gains tax collected is a loss in real terms. And it would be trivial to fix it; just adjust the tax basis for inflation when calculating the capital gain. But reasonable tax policy is not a thing that we have.
- chii 2y ago
  > just adjust the tax basis for inflation when calculating the capital gain. which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. Not to mention that it takes a lot more effort to do this. Simply discounting capital gains tax is sufficient as a simplification.
  - AnthonyMouse 2y ago
    > which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. The BLS publishes the inflation numbers monthly. Higher granularity than that is negligible and hardly even measurable; the main issue is when you hold something for many years and the rate of inflation is in the double or triple digits. Also, this stuff is already being done by computers. The computer needs the dates to determine if it's a short-term or long-term capital gain so it can use them to calculate the inflation using the official numbers. > Simply discounting capital gains tax is sufficient as a simplification. The difference is enormous. If you hold something for 18 months and the inflation was 6%, you get the same discount as if you hold it for 50 years and the inflation was 600%.

JumpCrisscross 2y ago

> They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action Those gains also fuel wealth effects. Our tax take as a fraction of GDP has been flat since WWII [1]. An MMT anti-inflationary cash-destruction programme would involve hundreds of billions, perhaps trillions, of borrowing or tax increases (with no increase in spending). That didn't happen for obvious reasons. [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S

AnthonyMouse 2y ago
"As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue by 10% and caused 10% more nominal dollars to be removed from the economy. The part that didn't happen is that the government then needs to not spend that extra money, or else it goes back into the economy and continues inflating prices.
- ffgjgf1 2y ago
  What exactly is the government spending that money on makes bug difference on inflation, though
  - AnthonyMouse 2y ago
    That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
    - ffgjgf1 2y ago
      > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.