Comment by jnordwick | Hacker News Reader

Comment by jnordwick | Hacker News Reader

Taxing capital is about the worst, most destructive tax policy you can have.

1- Capital is the main driver of productivity, and productivity is the only long-term way to increase the standard of living.

2- Capital is very mobile. Static analysis of taxation doesn't just fail, it fails miserably. It can move offshore. It can be structured so that its gains are realized in years or ways that avoid taxes.

3- Taxes on capital affect everybody, not just who they are intended to affect. If you want to tax those with very high incomes, directly tax those with very high incomes. Remember, ALL taxes are paid for by people by definition. A corporation doesn't really pay taxes, but shareholders take a hit in the form of a lower stock price and lower dividends, employees take a hit in lower pay, the jobless who would have worked there aren't hired, the suppliers take a hit in less production, and the customers take a hit in higher prices. Most people hurt are those that aren't the 1%.

The US has one of the highest marginal tax rates on capital, and it has only exasperated the problem because capital is what improves the lives of those at the bottom. Tax it, and the wealthy will find ways to shield themselves, but those who can't afford sophisticated tax strategies will be hurt the most.

STOP TAXING CAPITAL. The single best thing the US could do to raise the standard of living for everybody is to entirely eliminate all corporate and capital gains taxes. They collect so little money for the damage they do, and when you count in the cost of enforcement, they barely pull in their cost.

Earn millions from investing, via dividends and capital gains, pay 15% tax on it.

The FICA 'wedge' on the first dollar earned by a minimum wage worker is 15.3%.

How is that fair, that Warren Buffett's secretary pays a higher tax rate than he does?

And furthermore there are all kinds of ways of reducing the 15%, and all kinds of incentives for investment in the form of accelerated depreciation, deductibility of interest etc., and all kinds of easy ways to make labor income a dividend or capital income.

Think of labor income as a return on human capital and the human as deserving of the same tax treatment as the factory or the tools.

This notion that income from capital shouldn't be taxed or should be taxed less than income from labor is rent-seeking of the worst kind.

Can a doctor can say, all human welfare, progress, income depends on health, etc. and I have mobility and can work anywhere in the world, so don't tax me? It's madness. Capital flows to places that have security, infrastructure, public health and education, and the taxes that pay for them.

1- Taxing capital still harm those at the bottom of the ladder the most. Even if we accept what you say, we still shouldn't tax capital, but find better ways tax. Taxing capital gains and dividends still falls heavily, in secondary effects, on those least able to avoid it.

2- FICA is 20% an insurance policy and 80% a retirement plan that you get back when you retire. You actually get a better deal (you get more per dollar contributed if you are less wealthy). What you are really saying is you want the wealthy to pay for health insurance and retirement for those lower on the income ladder. You should really just own that position instead of trying to hide it.

3- > rent-seeking of the worst kind

You and a large chunk of people don't seem to really understand that concept. Me buying a factory and in turn buying labor from people and making a return on that investment isn't anywhere close to rent seeking.

1 - please cite peer reviewed papers by legitimate economists (not rent-seeking lobbyists or nutbags, everyone knows who they are)

2 - it's a retirement plan when it's convenient to view it that way, a tax when it's not. Government views it as a tax when including it as tax revenue when calculating e.g. budget deficits. Right-wing pundits view it as a tax when talking about the size of big government. In terms of economic impact and incentive to work for wages I believe it acts mostly as a tax, just as you think incentives to invest are impacted by capital gains taxes etc.

3 - building a factory is not rent-seeking, saying your income from it should not be taxed is very transparently so

and productivity growth increases surplus, it does not determine which factor of production the surplus accrues to. capital investment does not directly increase wages. labor supply and demand does. increasing productivity should usually shift labor demand higher, however trends in labor supply or structural factors that impact labor's bargaining position can sever the connection between productivity and labor demand (monopolies and monopsonies, import substitution, labor regs, labor's ability to organize etc.).

Tax policies are evolved creatures with the very big evolutionary force being the practicalities of what you can tax.

For most income earners, defining money as income is easy and taxing it is easy. For high income earners, it is not. Is this a revenue, profit, personal income, capital gains, etc? Capital is mobile, you're right. So are cash flows from that capital. A lot of that is for reasons to do with legal structures: jurisdictions, corporate law, etc. It's hard stuff to change, especially if your goal is "raise more tax next year."

This is why the upper middle classes pay so much tax. They're easy to tax.

Anyway, I agree with you to a certain extent. It's hard to tax capital gains, or other incomes that are not "salary from job X." But, I don't think the "improves the lives of those at the bottom" argument holds water at all. So is "Labour" and so is "Natural Resources" or any other economic fundamental.

I'd like to see a large shift from taxing productive activity to taxing things like pollution. I.e. reduce taxing things we want people to do and increase taxing things we want less of.

I think sin taxes are marginal, ultimately. I have nothing against them, but I don't think they change the game in fundamental ways.

Historically, they do. People talk about high marginal tax rates in the 1950s, but few to nobody actually paid those rates. This was because there were a lot of tax shelter options available, and deductions were a lot looser. Reagan got the tax reductions through Congress by agreeing to eliminate the tax shelters and tightening up a lot on deductions.

The result was a massive shift out of relatively unproductive tax shelter investments into more productive ones. Although I've never seen this opinion in print, I suspect a lot of the economic growth that resulted was a consequence of this shift in investments.

But inequality is something we don't want. I'm more OK with the argument that income/wealth taxes are only good to the extent they progressive. [As a US resident] VATs don't sound appealing.

What if we want less wealth inequality?

Tax those whose income exceeds the desired upper limit. In other words, in addition to having a minimum wage you have a maximum wage, where the maximum wage is a multiple of the minimum wage (x1000, for example). Any income earned between the minimum and maximum wage would go untaxed, but exceeding the maximum wage results in incurring tax.

In order for this to work, we would need to include a way to tax assets as well, as otherwise people could just put their money into assets.

The best way to do what is to make everybody poor. Historically, that is about the only things that works. This idea of both high and equal wealth for everybody doesn't seem to be possible if we use history as our gauge.

Are you suggesting that wealth inequality is lower now than it has ever been?

I find this idea appealing too, because it creates good incentives in the market. What I wonder about is the kind of incentives it creates in government (what do we do when pollution is eliminated but the government is broke?). Do you know of any good writing on this topic?

Is anyone really worried about pollution being eliminated? :-)

Trickle down economics?

The IMF found if income share of top 20 percent increases, GDP declines over medium term. Conversely, if bottom 20 percent increases, GDP goes up.

It makes sense - rich people invest their money, which may or may not drive economy. Poor people spend, which absolutely drives economy.

Redistribute if you want. I'm just saying do it though different tax mechanisms. Capital taxes are the worst possible way.

How do you then prevent a regressive tax policy, given capital is almost the exclusive form of wealth accretion for the 1%?

You could tax assets, e.g. land-value tax.

That is still a tax on capital and like to cause a lot of social issues. Property taxes tend to drive people out of their homes and out of business too easily. Plus then you taxing inflationary effects probably more than anything else.

Real estate for example is very inflation sensitive and your tax bill would be all over the place if you taxed the capital gain on that. Then what do you do when the land falls in value? Do you really think the government would give a rebate? And then when it rises again, hopefully they wouldn't tax it again (the basis for the last taxation should have been raised), but I wouldn't put it past legislators grabbing for money by saying you can only back back 5 years or something to determine the tax basis.

> "That is still a tax on capital"

What's your definition of capital?

"and like to cause a lot of social issues."

Which parts of this article on land-value tax do you disagree with?

https://en.m.wikipedia.org/wiki/Land_value_tax

That the methods proposed for valuing are good enough.

https://en.m.wikipedia.org/wiki/Land_value_tax#Assessment.2F...

In particular, the "Value can be computed by capitalizing rental streams." (Is someone renting the land, or are they renting the office skyscraper that's on the land?)

"Further, valuators in the home-and-contents insurance industry do so in order to calculate an insurance premium, separating the value of the home from the value of the land."

My experience is that's done in a straight-line percentage method ("the land is 20% of the purchase price in this area"), which doesn't distinguish adequately enough for taxation valuation purposes, IMO, but does provide some basis for insurance company purposes.

"Another approach is the residual method: the value of the site is the property's total value minus the depreciated value of buildings and other structures."

So, the land I own under a rental property gets more and more valuable each year (as I depreciate the buildings and structures)? Then, I sell it to another investor and the land value drops again to a low baseline and starts to rise as THEY depreciate the buildings? That doesn't make any sense to me.

The article admits that the whole valuation topic is a hard problem and I agree with that.

Tax land use and tax raw material use. (i.e. aluminum in a can). Eliminate just about all other taxes.

Don't tax "capital" in the form of money, certainly don't tax labor.

Why punish productive effort? Punish use of resources. This will make people strive for efficiency and go a long ways towards eliminating problems like pollution, encourage recycling etc.

Let's say you could double the wealth of everybody in the country in 20 years, but the top 1% (or 0.1% or choose your most hated percentile) would have their wealth in crease 10x. I don't really see wealth accretion as a problem.

If that incredibly wealthy person goes and spends his money ostentatiously -- basically why we generally hate the rich in the first place because of the social stratification caused by them have bigger and better things -- then a sales tax with luxury tax or high profile items would quickly bring them back into the category of those most taxed.

If that incredibly wealth person didn't spend a lot of money and lived well below his means, then why do we care? He is basically producing for free for the rest of use to consume. If he invests his money or just puts it in a bank account, he is helping to increase capital formation and drive society forward. Even if he just burns his money or buries it, he is basically giving everybody else in the world more purchasing power -- and in this case he literally is working for free. I never understood this who argument about the rich sitting on their money: it means they are working without consuming and that means they really aren't being paid.

Income taxes are okay to an extent too. But they are just so much more difficult to get right. Defining income is difficult, and some people have very volatile income streams earning $200k one year and $50k the next. Should they really be taxes more (and a great deal more) than the guy who make $125 in two years? A sales tax or VAT is just easier from an implementation point of view. And there is nothing stopping you from excluding items like food and medical bills and nothing stopping luxury taxes either.

The assumption there is that a regressive tax policy "lifts all ships." Piketty (and plenty others) have demonstrated that this does not happen.

> we generally hate the rich in the first place because of the social stratification caused by them have bigger and better things

The rich aren't hated because they drive nicer cars, they are hated because it's their greed that causes a lot of suffering.

> it means they are working without consuming and that means they really aren't being paid

Our economy relies on consuming. And even if they never consume their assets, they do consume the interest it generates. Sometimes for generations.

If you double the wealth of everyone in 20 years, and the 0.1% have their wealth increase 10x then the problem has gotten worse. I make $1 today and they make $10, in 20 years I make $2 and they make $100.

> If that incredibly wealthy person didn't spend a lot of money and lived well below his means, then why do we care?

Because wealth is many different things. Too the poor, wealth is food. This can be increased, within reasonable limits. Too the middle class, wealth is access to inherently limited resources, like properties with a non-atrocious commute. Too the rich, wealth is power and that, by nature, happens at the expense of others. Capital accretion is power accretion, even more so when the rich lives like a monk. And the power you give one person is freedom you take from another. Once they have used their power to own all nice spots of land and use the food to run their boats and jets on "green" fuel, it turns out that all the supposed wealth you have given the lower classes was just money.

Taxing capital suddenly looks dead easy when you compare it to taxing power.

Dollars are just green pieces of paper.... If you don't actually use those green pieces of paper for anything then they remain green pieces of paper. There is no shortage of dollars. The government can create more of them whenever it wants, if it feels like the wealthy are hoarding them

Recent history shows zero net gain for most Americans there is no lifting all boats just ever more money at the top.

> If that incredibly wealth person didn't spend a lot of money and lived well below his means, then why do we care?

If they truly never use it---spending it or using its mere existence for leverage---they might as well be burning it. Literally the economy is being shrunk for nobody's gain.

Friendly aliens arrived for 10 years, built a lot of houses, produced a lot of smartphones, cleaned a lot of cities. They took a fee for all of that and then flied back to their planet taking all the money to be never seen again.

The economy literally got a lot of free stuff and obviously people are much richer than before. Money is a promise, if someone is forgetting the promises others made to them (burning money) others benefit as they just got free stuff.

Um no? A really simple model of a healthy economy is that money sloshes back and fork and yet value is created. A more realistic variant is that the money supply also increases (loans & interest). The point is in either of these the money supply isn't going down. I'm no economist but all that money just disappearing sounds really bad. I doubt the gains to the economy from the "free stuff" would offset it.

A sign of a health economy is production. Consumption is a secondary effect. It arises from production: you cannot consume without it being produced first, and you never really need to induce consumption. I know they say it a lot, but it is crazy. The human desire for stuff in unquenchable, but getting somebody to produce is always the hard part.

The Veil of Money was used to describe the question of whether money was important to the real economy, and it brings up how money can confuse and hide.

Money is just an accounting mechanism, literally an IOU -- a claim on future production. Remove the money and see what happens: The chef and I down the clean exchange services and we agree on an equal exchange, one hour of her time for one hour of my time. She cooks for me for 5 hours, but she doesn't have any need for my help yet, so I write her an IOU saying I'll help her with her stock portfolio when she needs me. She decide to die in a horrible fire, taking with her the house and IOUs. Now I have 5 hours of free cooking and the world is no worse off for her not consuming. In fact it is much better.

If somebody worked and produced so much more than anybody else in the entire world and produced half or everything but never spent a penny and one day burned everything, yes, the dollar would double in value overnight -- fewer dollars chasing the same amount of good, deflation. All the government would need to do is produce the little green pieces of paper or double everybody's bank accounts overnight, and the world would now have all that stuff for free.

A huge part of the anti-inequality argument is that poverty prevents the consumption that would otherwise occur. The burnt/other-planet'd IOUs represent a lost opportunity to get that consumption going again.

You are making a rather big assumption. Orthodox economic theory has a lot of (well argued) focus on economic "efficiency." But, even positive sum games can have negative impact on a specific party.

IE, I agree with the orthodox position (EG Milton Friedman) that taxing person A to provide services to person A is generally a bad deal for person A.

If there was a policy whereby tax is raised and groceries are provided by central buying organisation and distributed back proportionally to their contribution, almost everyone would loose. The production of groceries would be worse. etc. But, that doesn't mean a progressive redistribution would harm everyone.

In my groceries example the reality is that the vast majority would be far worse off. It's a very bad policy. My point is that the argument for progressive taxation is in my opinion very hard to dismiss from an economics perspective. A dollar is not of equal consumption value in different hands to the same extent that it is not of equal productive value in all hands. Consumption does not have the same market forces funnelling it to its highest value use, a consumption equivalent of Coase theorom or somesuch.

The advantage of redistribution of wealth at point of consumption is (again, IMO) real and it grows bigger as wealth becomes more unevenly distributed.

I'm not saying you shouldn't redistribute. I don't have a problem with that actually. I'm arguing that if you are going to (and let me reiterate, I think we should), there are much better ways to do it than a tax on capital.

Capital gains taxes make up about 4% of total revenue. For that 4%, we pay almost half of that on enforcement. So, for 2% of our revenue, we do some pretty nasty damage. There definitely are better ways.

> Let's say you could double the wealth of everybody in the country in 20 years, but the top 1% (or 0.1% or choose your most hated percentile) would have their wealth in crease 10x. I don't really see wealth accretion as a problem.

The way our politics are structured for the time being (and have been structured for basically all our history), under your hypothetical those getting the 10x increase would see their influence in government increase roughly five-fold or so. The current wealth disparities in most of the developed world are already stretching the legitimacy of democracy to its limits - if what you suggest came to pass what is left of it would evaporate.

The rich are hated because their accumulating wealth leaves less for the rest of us. As often this wealth is not even the product of merit, it's even more infuriating.

> If you want to tax those with very high incomes, directly tax those with very high incomes.

I'm not going to argue for/against capital taxes, but what are your thoughts on those who are in the top x% and avoid high income wages and make money other ways, or the whole Warren Buffet/secretary thing?

1- I don't like using the 1 in a billion for examples. It is way too easy to draw really bad conclusions. Even if everything he tells us is true, do you really want to set taxes for the top 1% based on 20 obscenely wealthy people in the US? There's a lot of other reasons Buffet in particular is a bad example of anything basically.

2- A lot of these legal tax avoidance systems are a result of known breaks put in place for one intended use, but wind up being useful is so many many more ways. It is kind a game with many numerous complex rules where the winner winds up being the person with can find the most effective way of getting around those rules. To me this says the rules need to be made simpler and many tax breaks reconsidered, but obviously that isn't politically easy. Politicians tend to favor the group that makes the most noise, and when you try to take away a favorite tax break, those people will make a hell of a lot of noise. I think if pols made the decision to actually go against that, the electorate as a whole would support them, even some of the vocal few.

3- If he's being really truthful, I think its pretty bad. One of the big issues how you count payroll taxes for Social Security. When trying to analyze tax fairness, I don't think you should include them. After all, they are retirement program that comes back to you, and when you do retire, the more you paid in the lower your rate of return, so saying they are a regressive tax is completely discounting the nature of the tax. You should also then include everybody's retirement savings too (not possible I know).

I favor progressivity in taxes, but the way some people go about doing the accounting, they seem to be very disingenuous and really want to just soak "the rich" as a matter of principle regardless of how it affects the entire economy. They would give up 20% of everybody's wealth as long as they could bring down the wealthy by 50%.

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