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On the contrary, there is no logical reason to tax investors/savers. I strongly recommend this article by Scott Sumner, who works through the details carefully.

On the contrary, there is no logical reason to tax investors/savers. I strongly recommend this article by Scott Sumner, who works through the details carefully. http://www.themoneyillusion.com/?p=28842 http://www.themoneyillusion.com/?p=28842 The key point is that taxes on investments create distortions while taxes on consumption don't. It's even worse if you tax different investments differently (e.g., interest vs cap gains, short term vs long term cap gains).

JDDunn9 11y ago
That article has too many flaws to go into, but the whole idea of all investments growing the economy are just false. Most of the investment dollars go to areas with little to no benefit. The (secondary) stock market, derivatives, commodity speculation, forex, etc. These produce almost no jobs, produce no goods/services, and do very little (aside from marginal liquidity) for the economy. An economy build on financial magic and imaginary money isn't sound.
- yummyfajitas 11y ago
  That article has too many flaws to go into... Such a cute - yet content-free - dismissal. It's also pretty clear from your "critique" that you didn't even read the article - while Sumner's examples do use a positive rate of return, his argument is independent of it.
- SamReidHughes 11y ago
  Derivatives, commodity speculation, forex, etc, all allow organizations to hedge risks and make decisions that have higher expected economic returns.
millstone 11y ago
I read it and I don't get it! Here, take a look: > Suppose we want to raise revenue with a present value of $20,000...We could have a wage tax of 20%, and raise $20,000 right now. OK, sure. > In contrast, an income tax doubles taxes the money saved, once as wages, and again as capital income . So now it’s $40,000 consumption this year, and only $72,000 in 20 years ($80,000 minus 20% tax on the $40,000 in investment income), an effective tax rate of 28% on future consumption So the line of reasoning is: 1. The government wishes to raise $20k NPV in taxes 2. A 20% wage tax or VAT will accomplish this exactly, but a 20% income tax will raise $24k NPV, which means it is an effectively higher tax 3. Therefore income taxes are worse than wage taxes or VAT. But that doesn't follow at all. The correct conclusion is that an income tax raises the same revenue with a lower nominal rate. That doesn't by itself make an income tax better or worse.
- yummyfajitas 11y ago
  The issue is that an income tax (which applies to both capital and wage income) taxes savers at a higher rate than spendthrifts. I.e., if Steve blows all his money on hookers, he pays a 20% tax. However, if Sally judiciously saves her money for a rainy day or unexpected expense, she will be paying a 28% tax rate.

JDDunn9 11y ago

That article has too many flaws to go into, but the whole idea of all investments growing the economy are just false. Most of the investment dollars go to areas with little to no benefit. The (secondary) stock market, derivatives, commodity speculation, forex, etc. These produce almost no jobs, produce no goods/services, and do very little (aside from marginal liquidity) for the economy. An economy build on financial magic and imaginary money isn't sound.

yummyfajitas 11y ago
That article has too many flaws to go into... Such a cute - yet content-free - dismissal. It's also pretty clear from your "critique" that you didn't even read the article - while Sumner's examples do use a positive rate of return, his argument is independent of it.
SamReidHughes 11y ago
Derivatives, commodity speculation, forex, etc, all allow organizations to hedge risks and make decisions that have higher expected economic returns.

millstone 11y ago

I read it and I don't get it! Here, take a look: > Suppose we want to raise revenue with a present value of $20,000...We could have a wage tax of 20%, and raise $20,000 right now. OK, sure. > In contrast, an income tax doubles taxes the money saved, once as wages, and again as capital income . So now it’s $40,000 consumption this year, and only $72,000 in 20 years ($80,000 minus 20% tax on the $40,000 in investment income), an effective tax rate of 28% on future consumption So the line of reasoning is: 1. The government wishes to raise $20k NPV in taxes 2. A 20% wage tax or VAT will accomplish this exactly, but a 20% income tax will raise $24k NPV, which means it is an effectively higher tax 3. Therefore income taxes are worse than wage taxes or VAT. But that doesn't follow at all. The correct conclusion is that an income tax raises the same revenue with a lower nominal rate. That doesn't by itself make an income tax better or worse.

yummyfajitas 11y ago
The issue is that an income tax (which applies to both capital and wage income) taxes savers at a higher rate than spendthrifts. I.e., if Steve blows all his money on hookers, he pays a 20% tax. However, if Sally judiciously saves her money for a rainy day or unexpected expense, she will be paying a 28% tax rate.