From our January 2012 post "
TAXES, CAPITAL AND JOBS":
Over the last few years I've come to believe that all income, earned and
unearned, should be taxed at the same rate, that preferential taxation
of capital no longer leads to the intended policy effects of job
creation and increasing capital investment in plant. property and
equipment but rather is a bought-and-paid-for scam perpetrated by the
financier class.
On a related point, it's time to get rid of the carried interest
loophole which taxes income at cap gains rates for private equity and
hedge funds.
That carried interest should not be treated as a capital gain can be proven quite easily.
Show me one tax return where a carried interest capital loss was allowed.
[you won't be invited to any of the meetings ever again -ed]
At the lower end of the income scale there should be some minimum tax. Everyone should have some skin in the game.
I'll be coming back to all these topics throughout 2012, in the meantime
here's the granddaddy of Econ papers for folks interested in this
stuff, sincere thanks to the reader who turned my vague recollection of
the thesis into an actual PDF copy. It is as pertinent and fresh today
as the day it was written, 34 years ago....
And a different angle from Felix Salmon at Reuters last week:
Last week’s Munk debate
featured one of those strange-bedfellow moments, when Paul Krugman
agreed with Art Laffer that the tax rate on capital gains should be the
same as the tax rate on income. (In fact, Laffer went one step further
than that, saying that even unrealized capital gains should be
taxed at the same rate.) Normalizing the capital-gains tax rate so that
it’s the same as the income-tax rate is an easy way to bring a lot of
money into the public fisc — some $161 billion per year, according to
the CBO. So why aren’t we doing it?
Evan Soltas does his best to answer that question with his “Defense of the Capital-Gains Loophole”. Here’s the meat of his argument:
Most tax breaks create distortions. The tax break for
capital gains does the opposite: It reduces a distortion. Investment is
really deferred consumption. Taxing consumption tomorrow at a higher
rate than consumption today — which is what a tax on investment income
does — encourages people to shift consumption forward in time, and
that’s inefficient.
This doesn’t make a lot of sense. Firstly, investment really isn’t
deferred consumption. The amount of money invested, in the world, is
going up over the long term, not down — which means that once
you look past the natural tidal movements of money in and out of various
investment vehicles, it’s reasonable to say that money, once it gets
invested, stays invested. Pretty much forever. The amount of money being
saved, plus the amount that the investments have grown, is nearly
always going to be greater, in aggregate, than the amount of money being
withdrawn for the purposes of consumption. That’s the
inefficient thing: money that could be cycling through the economy at
high velocity is instead tied up in investment vehicles, and might not
be spent for decades, if at all....MUCH MORE
One of these days I'll get around to doing a "The diminishing returns to capital deepening" post, or somesuch.
