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> IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead. We already tax capital g

> IMO, the perfect solution would be to eliminate the corporate tax altogether, and tax capital gains and dividends as income instead. We already tax capital gains on short-term investments as income. Taxing long-term capital gains at the same rate as income would have a number of other unpleasant consequences - It would eliminate the incentive to hold investments for longer than 365 days - It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax (which is what we sometimes misleadingly refer to as "double taxation")) Regarding point #1 - if you sell a stock before 1 year, you already pay normal income tax on any gains. This encourages buy-and-hold, long-term investing, which I believe most people on HN would agree is good for the economy at large, as it reduces volatility and ensures that shareholder incentives are better aligned with growing the company. Regarding point #2, which is mildly controversial (but IMHO only because it is misunderstood): it is good to encourage investments in the economy, because this is literally how business raise capital. Readers of Hacker News should be well aware of the importance of this in the private equity markets (ie, venture capital, which is technically a form of private equity). Similarly, in the public markets, it is good to create incentives for people to park their money in places which help spur the economy[0]. [0] In theory (obviously not always in practice), providing capital to a business has the potential to stimulate the economy more than providing capital to an individual, as the business uses that capital to pursue a profit, hire employees, etc.

cliftonk 12y ago
In theory you are correct but the marginal investor (who sets the price of an asset) will always trade based on its present day value. So, in reality, it wouldn't affect market rates much. The corporate tax, on the other hand, is a heinous tax that hurts our economy substantially. We have to make the money somewhere.
dllthomas 12y ago
"- It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax" Please distinguish between: I make money. It is taxed at X%. 1) I put that money into the market, other people use it to make more money, I receive some money ($Y) for that (in dividends or raised stock price) and that is again taxed at X%. 2) I put that money into making myself a better worker. Next year, I make $(X+Y) more than I would have. The $X I spent, I got to write off as a business expense (maybe). The $Y is taxed at X%.
buerkle 12y ago
Point 2: You are not paying double taxes on the income. You are paying taxes on the profit you made selling the investment. If I invest $100 and make $10, I pay taxes on the $10, not the original $100 investment.
- chimeracoder 12y ago
  Capital gains tax rates are roughly half income tax rates. Currently, we say "double taxation" when we refer to being taxed at the corporate level, and then again at the shareholder level (either as long-term capital gains or as income). Shareholders don't directly feel the corporate tax (though they are still effected by it). What I meant was that, if we eliminated the corporate tax but increased the capital gains tax to be equal to the income tax rate, the tax rate that shareholders pay on the gains would be twice what they are currently paying. (The actual incidence (burden) of the tax is more complicated to calculate; I'm simply referring to the direct tax rates.) This is all very rough, of course, since marginal tax rates vary widely.

cliftonk 12y ago

In theory you are correct but the marginal investor (who sets the price of an asset) will always trade based on its present day value. So, in reality, it wouldn't affect market rates much. The corporate tax, on the other hand, is a heinous tax that hurts our economy substantially. We have to make the money somewhere.

dllthomas 12y ago

"- It would reduce the incentive to invest in the market (since you would quite literally be paying double taxes on this income, instead of more like 1.5x the tax" Please distinguish between: I make money. It is taxed at X%. 1) I put that money into the market, other people use it to make more money, I receive some money ($Y) for that (in dividends or raised stock price) and that is again taxed at X%. 2) I put that money into making myself a better worker. Next year, I make $(X+Y) more than I would have. The $X I spent, I got to write off as a business expense (maybe). The $Y is taxed at X%.

buerkle 12y ago

Point 2: You are not paying double taxes on the income. You are paying taxes on the profit you made selling the investment. If I invest $100 and make $10, I pay taxes on the $10, not the original $100 investment.

chimeracoder 12y ago
Capital gains tax rates are roughly half income tax rates. Currently, we say "double taxation" when we refer to being taxed at the corporate level, and then again at the shareholder level (either as long-term capital gains or as income). Shareholders don't directly feel the corporate tax (though they are still effected by it). What I meant was that, if we eliminated the corporate tax but increased the capital gains tax to be equal to the income tax rate, the tax rate that shareholders pay on the gains would be twice what they are currently paying. (The actual incidence (burden) of the tax is more complicated to calculate; I'm simply referring to the direct tax rates.) This is all very rough, of course, since marginal tax rates vary widely.