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As a theoretical matter, I'm afraid that you are incorrect. There are essentially zero theoretical arguments that support taxing capital gains at the same rate

• rayiner 13y ago
  You're making a slightly different point, which is that we shouldn't tax all income, just wage income. My point is that we don't have a "wage" tax, we have an "income" tax, and capital gains falls under that definition of "income." The theoretical definition of "income" used by the U.S. tax code and developed by economists is simply income = consumption + change in value of property rights. The U of Chicago economist who developed this formulation and espoused the introduction of the income tax in the U.S. had somewhat different policy objectives for the tax than current economists. See: http://taxprof.typepad.com/taxprof_blog/files/Duff.pdf http://taxprof.typepad.com/taxprof_blog/files/Duff.pdf (p. 6-11).
  • harryh 13y ago
    You're playing word games. Our tax code does, in fact, treat wage income differently from capital gains (at least those > 1 year). How this relates to a definition of income that some guy wrote in the 20s or 30s isn't relevant.
    • rayiner 13y ago
      I'm not playing word games, but rather trying to clarify policy conflict that gets obscured by terminology. Simon's definition of income is the one animating the U.S. income tax. Lots of things have been added to the income tax over the years (the capital gains preference wasn't added until 1921), but the underlying theory is one of taxing net changes in wealth. Capital gains, being changes in the value of property rights, are clearly income within that framework. Many economists do believe that we shouldn't tax capital gains, and they might be right. But it's also true that the income tax was conceived as a progressive measure to reduce income inequality and shift the tax burden to the families of wealthy industrialists like Carnegie and Rockefeller. A theory that exempts capital gains from the definition of "income" is plainly inconsistent with those purposes. So I stand by my original point, which is that capital gains are income and so long as we have an income tax, should be taxed as such. There are compelling arguments that consumptive taxes would be more efficient, but efficiency isn't the only policy concern in play.
      • harryh 13y ago
        We don't "have an income tax." We have a detailed set of tax laws that apply to individuals. Those laws treat capital gains differently from wages. One of the reasons for that is that lower taxes on capital gains is believed to be more economically efficient. There are, of course, many other considerations that should be taken into account when designing a tax code. And you're free to argue that those other considerations are more important than efficiency. But you aren't actually doing that. You're just pointing to the name of the thing and declaring that because of the words being used a specific system must follow. That's what I mean by word games.