4 ms·

If your argument were true we should set taxes on capital to zero, which is quite obviously a bad idea.

immibis 11mo ago
If their argument were true we should set them as far negative as possible - we should tax 100% of labour and give all that money to capital owners. Which is kind of something that's already happening.
mike_hearn 11mo ago
No, that's been a common proposal from economists pretty much since people started examining how economies work. Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax is one of those issues where there are actually correct and incorrect answers, thanks to many hundreds of years of active experimentation and relatively simple/robust theory. But people ignore the correct answers for social reasons. The correct answer on tax is: 1. Figure out how much money the state needs to supply the services that are in-scope for it to an acceptable level of quality. 2. Aim to raise that much in taxes. 3. Optimize deadweight costs. That is, configure taxes to minimize the level to which the activities being taxed are discouraged and driven either out of existence or abroad. If you do this sort of thing then you get Georgeism, you get zero capital gains, I think you get zero taxes on businesses, and a bunch of other policies I can't remember right now. The results can be economically very efficient i.e. they make everyone better off. However, almost nowhere uses them because there's nothing in the above three items about social engineering, and governments use taxation largely as a tool of social engineering. And in particular to please leftist voters who use the tax system to penalize wealth for its own sake, and to reward groups of client voters. Many governments also have a lot of trouble defining what's in scope for them and then working backwards to needed tax revenues; they prefer to raise as much tax as they can manage without totally crushing their economies and then find ways to spend it.
- triceratops 11mo ago
  > Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax Switzerland is a bad example because they tax capital more directly. In the form of a wealth tax. https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth_tax https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth... GP said setting taxes on capital to zero was a bad idea. Switzerland has only set capital gains taxes to zero. It still taxes capital.
  - mike_hearn 11mo ago
    I live in Switzerland. It's an excellent example of a place without a capital gains tax, because it doesn't have one. I didn't say it doesn't have other taxes! The type of tax matters a lot. The reason capital gains taxes are bad is that they discourage investment, but investment is how you create wealth. "Creating wealth" is ultimately a synonym for creating material progress. Voters like progress, and so this is a very simple and direct argument, which is why most countries that have capital gains tax it at a lower rate than income. Wealth taxes have different incidence and change incentives in different ways. Basically, they discourage having wealth rather than creating it. It can create its own problems. Switzerland has had big problems in the past with the wealth tax discouraging the creation of tech startups. The reason is that if you create a company then sell some equity in it to investors, that creates a valuation of your company which is then considered wealth, even though it's theoretical wealth and not liquid. In other words, doing a big VC raise can land the company founders with an unpayably massive tax bill: they literally don't have the money to send the government because it's only paper wealth. To fix that the Swiss tax authorities had to introduce a new rule that says if you have ownership of a startup, this doesn't count towards the wealth tax. What exactly is a "startup" and what differentiates it from other kinds of business? Whether it is "innovative". What counts as innovative? The taxman decides. That means creating a startup in Switzerland is quite risky as if some random bureaucrat decides your product isn't truly innovative and you do a big VC raise you could be personally bankrupted (or you have to use some of the investors money to pay yourself out each year, which is then taxed as income too pushing you into a much higher tax bracket, etc). There are lots of other practical problems with the wealth tax. Tax incidence is complicated! In practice the Swiss approach works because: - The wealth tax is quite low - This "innovative startup" hack seems to work out in practice even if it's concerning in theory (tech startups aren't the only way to create a lot of wealth) - Wealth taxes discourage all kinds of wealth equally, so the effects are diffuse and they don't specifically discourage e.g. getting promoted over company formation over inheritances, which is a distortion a lot of other approaches do create.
- airstrike 11mo ago
  The Switzerland model is unique in several ways, both in its history, which cannot be replicated, and in embracing of...questionable financial services. It's unclear that the model can be replicated generally, let alone whether it should. Importantly, there may not be sufficient demand for banking services like the Swiss provide. Your three step plan says nothing about how much should be taxed at the personal vs corporate income level, or on the gap between capital gains and labor income taxes. I'm not arguing for higher tax revenue overall. I don't believe in that, but I also wouldn't even need to make the argument even if I believed in it. The simpler, more defensible argument is that taxes on capital gains must be much closer to income taxes. Historically they were, even in the US, and we seemed to be fine.
  - mike_hearn 11mo ago
    The idea Switzerland's economy is dodgy or dependent on banking is an urban legend. Only 10% of Swiss GDP comes from finance at all and that includes everything, including insurance and pensions. Private banking is only a fraction of that, and private banking with anonymous accounts - which is what people tend to mean by this - was a tiny fraction of that again. Meanwhile, financial privacy isn't inherently questionable. The USA did a big push in the 1970s to strip privacy from the financial system which until that point had been the default. That was the birth of the concept of money laundering, created as part of the war on drugs. The approach failed as drug cartels found ways to launder money cheaply enough that it wasn't a big friction for them (normal estimate, it adds ~10% to their costs). Not everyone thought that was a great tradeoff, and the Swiss numbered accounts had been used by people trying to hide from the Nazis. At any rate, the USA forced their concept of anti-money laundering on the world (not that most countries needed the arm twisting) and Switzerland has implemented exactly the same policies as everywhere else for decades. It has no special rules with respect to banking for a long time now. > Your three step plan says nothing about how much should be taxed at the personal vs corporate income level It's a set of principles for answering those questions, not the full set of answers. It's been years since I looked at this but IIRC the general agreement is that you shouldn't bother with corporate/business taxes, because they're both an indirect/inefficient way to collect tax (all taxes are paid by people in the end), and easily avoided. It was for this reason that the designers of the EU's taxation system originally configured corporate taxation to be collected wherever the nameplate was (i.e. an arbitrary location chosen by the company). The assumption was that with time individual countries would compete the corporate tax rate to zero, fixing the underlying inefficiencies. Of course what's actually happened is some of the countries try to gang up on the others to try and force them to stop lowering taxes. It's not a stable outcome, politically. In practice business taxes are popular because politicians view them as a way to tax citizens of foreign countries. That has bad effects too but schools either don't teach economics or don't teach it properly in most places, so there are lots of weird hacks like this where something that creates more harm than the alternative gets preferred because people can't resolve the harm to the root cause.
- solumunus 11mo ago
  I’m not sure why all these economists bother arguing theory when obviously they should just go to you for the solutions. It’s all so simple afterall.
  - mike_hearn 11mo ago
    How much debate about this stuff still happens, outside of academics who need to publish or perish? From a quick check the only papers being published on this stuff are all variants of "if we add another variable <X> to some model we can conclude the difference in tax incidence is <Y>" where Y is some minor variant of pre-existing beliefs that may or may not hold in reality. Outside of that there are occasional flareups caused by old-guard left wing politicians or activists getting into fights about it with economists, and not much else. A lot of the debate on this topic is tedious anyway because it revolves around semantic distinctions that only exist in specific kinds of ideological discourse.
  - dang 11mo ago
    Please don't cross into personal attack, regardless of how wrong someone is or you feel they are. You're welcome to make your substantive points thoughtfully. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- kiba 11mo ago
  An ideal LVT would tax the full economic rent of the land, but that's unlikely to happen. We don't want to overshoot 100% because that would cause land abandonment. So in theory, LVT could collect more tax than the state needs to fund services. If that happen, it would be distributed as a Citizen's Dividend. I am skeptical that we wouldn't be able to find a productive use for government spending, but that's a discussion for citizens of a Georgist state to have. Also, Georgist policies would discourage the existence billionaires and other people with extreme wealth simply because a lot of their wealth came out of economic rent.
  - mike_hearn 11mo ago
    I never understood this Georgist argument. The richest people in the world today require very little land. Remote working is easily possible and plenty of companies use it, even if managers don't always like it. This feels like a medieval perspective.
    - kiba 11mo ago
      Georgists aren't frozen in time, nor had they ever been limited to just taxing "land". We consider any economic "land" fair game. We even discussed network effects that allow companies like instagram retain a monopoly. In any case, California are where some of the most powerful tech monopoly are located, and not coincidentally it's also where some of the most expensive land there is.
      - mike_hearn 11mo ago
        So you define land to include stuff like copyrights and patents too? What counts as economic land?
        kiba 11mo ago
        Just my opinion as a Georgist amongst many, I would categorize copyright and patents as non-reproducible privilege rather than economic land though non-reproducible privilege also describes private ownership of land. It's very clear that it's artificial, as ideas do not suffer from the exclusivity problem that comes with owning physical land. What IP has in common with owning land is the extraction of economic rent. Economic land is anything that's fixed, finite, and not man-made, such as land, the electromagnetic spectrum, and orbitals. Services like amazon and instagram are something of a puzzle to Georgists, but it's at least clear that Amazon and instagram benefits from labor and effort of the platform users. Without people selling on Amazon, there's no amazon. Without users, there's no reasons to be on instagram. To be perfectly clear, platform companies obviously put in labor to build their services, but the network effect isn't entirely of their own making.
- jimbokun 11mo ago
  In the US we just cut taxes, increase spending, and borrow the deficit without a thought to how to pay it back.

If their argument were true we should set them as far negative as possible - we should tax 100% of labour and give all that money to capital owners. Which is kind of something that's already happening.

mike_hearn 11mo ago

No, that's been a common proposal from economists pretty much since people started examining how economies work. Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax is one of those issues where there are actually correct and incorrect answers, thanks to many hundreds of years of active experimentation and relatively simple/robust theory. But people ignore the correct answers for social reasons. The correct answer on tax is: 1. Figure out how much money the state needs to supply the services that are in-scope for it to an acceptable level of quality. 2. Aim to raise that much in taxes. 3. Optimize deadweight costs. That is, configure taxes to minimize the level to which the activities being taxed are discouraged and driven either out of existence or abroad. If you do this sort of thing then you get Georgeism, you get zero capital gains, I think you get zero taxes on businesses, and a bunch of other policies I can't remember right now. The results can be economically very efficient i.e. they make everyone better off. However, almost nowhere uses them because there's nothing in the above three items about social engineering, and governments use taxation largely as a tool of social engineering. And in particular to please leftist voters who use the tax system to penalize wealth for its own sake, and to reward groups of client voters. Many governments also have a lot of trouble defining what's in scope for them and then working backwards to needed tax revenues; they prefer to raise as much tax as they can manage without totally crushing their economies and then find ways to spend it.

triceratops 11mo ago
> Some places do have a capital gains tax of zero. Switzerland is one of them, and Switzerland is economically more successful than the rest of Europe. Tax Switzerland is a bad example because they tax capital more directly. In the form of a wealth tax. https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth_tax https://en.wikipedia.org/wiki/Taxation_in_Switzerland#Wealth... GP said setting taxes on capital to zero was a bad idea. Switzerland has only set capital gains taxes to zero. It still taxes capital.
- mike_hearn 11mo ago
  I live in Switzerland. It's an excellent example of a place without a capital gains tax, because it doesn't have one. I didn't say it doesn't have other taxes! The type of tax matters a lot. The reason capital gains taxes are bad is that they discourage investment, but investment is how you create wealth. "Creating wealth" is ultimately a synonym for creating material progress. Voters like progress, and so this is a very simple and direct argument, which is why most countries that have capital gains tax it at a lower rate than income. Wealth taxes have different incidence and change incentives in different ways. Basically, they discourage having wealth rather than creating it. It can create its own problems. Switzerland has had big problems in the past with the wealth tax discouraging the creation of tech startups. The reason is that if you create a company then sell some equity in it to investors, that creates a valuation of your company which is then considered wealth, even though it's theoretical wealth and not liquid. In other words, doing a big VC raise can land the company founders with an unpayably massive tax bill: they literally don't have the money to send the government because it's only paper wealth. To fix that the Swiss tax authorities had to introduce a new rule that says if you have ownership of a startup, this doesn't count towards the wealth tax. What exactly is a "startup" and what differentiates it from other kinds of business? Whether it is "innovative". What counts as innovative? The taxman decides. That means creating a startup in Switzerland is quite risky as if some random bureaucrat decides your product isn't truly innovative and you do a big VC raise you could be personally bankrupted (or you have to use some of the investors money to pay yourself out each year, which is then taxed as income too pushing you into a much higher tax bracket, etc). There are lots of other practical problems with the wealth tax. Tax incidence is complicated! In practice the Swiss approach works because: - The wealth tax is quite low - This "innovative startup" hack seems to work out in practice even if it's concerning in theory (tech startups aren't the only way to create a lot of wealth) - Wealth taxes discourage all kinds of wealth equally, so the effects are diffuse and they don't specifically discourage e.g. getting promoted over company formation over inheritances, which is a distortion a lot of other approaches do create.
airstrike 11mo ago
The Switzerland model is unique in several ways, both in its history, which cannot be replicated, and in embracing of...questionable financial services. It's unclear that the model can be replicated generally, let alone whether it should. Importantly, there may not be sufficient demand for banking services like the Swiss provide. Your three step plan says nothing about how much should be taxed at the personal vs corporate income level, or on the gap between capital gains and labor income taxes. I'm not arguing for higher tax revenue overall. I don't believe in that, but I also wouldn't even need to make the argument even if I believed in it. The simpler, more defensible argument is that taxes on capital gains must be much closer to income taxes. Historically they were, even in the US, and we seemed to be fine.
- mike_hearn 11mo ago
  The idea Switzerland's economy is dodgy or dependent on banking is an urban legend. Only 10% of Swiss GDP comes from finance at all and that includes everything, including insurance and pensions. Private banking is only a fraction of that, and private banking with anonymous accounts - which is what people tend to mean by this - was a tiny fraction of that again. Meanwhile, financial privacy isn't inherently questionable. The USA did a big push in the 1970s to strip privacy from the financial system which until that point had been the default. That was the birth of the concept of money laundering, created as part of the war on drugs. The approach failed as drug cartels found ways to launder money cheaply enough that it wasn't a big friction for them (normal estimate, it adds ~10% to their costs). Not everyone thought that was a great tradeoff, and the Swiss numbered accounts had been used by people trying to hide from the Nazis. At any rate, the USA forced their concept of anti-money laundering on the world (not that most countries needed the arm twisting) and Switzerland has implemented exactly the same policies as everywhere else for decades. It has no special rules with respect to banking for a long time now. > Your three step plan says nothing about how much should be taxed at the personal vs corporate income level It's a set of principles for answering those questions, not the full set of answers. It's been years since I looked at this but IIRC the general agreement is that you shouldn't bother with corporate/business taxes, because they're both an indirect/inefficient way to collect tax (all taxes are paid by people in the end), and easily avoided. It was for this reason that the designers of the EU's taxation system originally configured corporate taxation to be collected wherever the nameplate was (i.e. an arbitrary location chosen by the company). The assumption was that with time individual countries would compete the corporate tax rate to zero, fixing the underlying inefficiencies. Of course what's actually happened is some of the countries try to gang up on the others to try and force them to stop lowering taxes. It's not a stable outcome, politically. In practice business taxes are popular because politicians view them as a way to tax citizens of foreign countries. That has bad effects too but schools either don't teach economics or don't teach it properly in most places, so there are lots of weird hacks like this where something that creates more harm than the alternative gets preferred because people can't resolve the harm to the root cause.
solumunus 11mo ago
I’m not sure why all these economists bother arguing theory when obviously they should just go to you for the solutions. It’s all so simple afterall.
- mike_hearn 11mo ago
  How much debate about this stuff still happens, outside of academics who need to publish or perish? From a quick check the only papers being published on this stuff are all variants of "if we add another variable <X> to some model we can conclude the difference in tax incidence is <Y>" where Y is some minor variant of pre-existing beliefs that may or may not hold in reality. Outside of that there are occasional flareups caused by old-guard left wing politicians or activists getting into fights about it with economists, and not much else. A lot of the debate on this topic is tedious anyway because it revolves around semantic distinctions that only exist in specific kinds of ideological discourse.
- dang 11mo ago
  Please don't cross into personal attack, regardless of how wrong someone is or you feel they are. You're welcome to make your substantive points thoughtfully. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
kiba 11mo ago
An ideal LVT would tax the full economic rent of the land, but that's unlikely to happen. We don't want to overshoot 100% because that would cause land abandonment. So in theory, LVT could collect more tax than the state needs to fund services. If that happen, it would be distributed as a Citizen's Dividend. I am skeptical that we wouldn't be able to find a productive use for government spending, but that's a discussion for citizens of a Georgist state to have. Also, Georgist policies would discourage the existence billionaires and other people with extreme wealth simply because a lot of their wealth came out of economic rent.
- mike_hearn 11mo ago
  I never understood this Georgist argument. The richest people in the world today require very little land. Remote working is easily possible and plenty of companies use it, even if managers don't always like it. This feels like a medieval perspective.
  - kiba 11mo ago
    Georgists aren't frozen in time, nor had they ever been limited to just taxing "land". We consider any economic "land" fair game. We even discussed network effects that allow companies like instagram retain a monopoly. In any case, California are where some of the most powerful tech monopoly are located, and not coincidentally it's also where some of the most expensive land there is.
    - mike_hearn 11mo ago
      So you define land to include stuff like copyrights and patents too? What counts as economic land?
      - kiba 11mo ago
        Just my opinion as a Georgist amongst many, I would categorize copyright and patents as non-reproducible privilege rather than economic land though non-reproducible privilege also describes private ownership of land. It's very clear that it's artificial, as ideas do not suffer from the exclusivity problem that comes with owning physical land. What IP has in common with owning land is the extraction of economic rent. Economic land is anything that's fixed, finite, and not man-made, such as land, the electromagnetic spectrum, and orbitals. Services like amazon and instagram are something of a puzzle to Georgists, but it's at least clear that Amazon and instagram benefits from labor and effort of the platform users. Without people selling on Amazon, there's no amazon. Without users, there's no reasons to be on instagram. To be perfectly clear, platform companies obviously put in labor to build their services, but the network effect isn't entirely of their own making.
jimbokun 11mo ago
In the US we just cut taxes, increase spending, and borrow the deficit without a thought to how to pay it back.