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Comment by extra88 | Hacker News Reader

So, eliminate corporate tax but at the same time increase capital gains tax, i.e. stop taxing it differently (less) than earned income? My concern with that is people shifting their wealth to be held by a private corporation instead of personally held; "it's not my yacht, it belongs to Extra88 Inc." I think additional changes would need to be made to the nature of corporations to avoid abuse.

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Your example of the yacht is already handled by the tax code (at least in Canada, likely everywhere else too). That is, if you take the yacht for weekend excursions that is a personal benefit and you should be paying tax on that.

A tax accountant might try to hide that, but if you get caught that's lying on your taxes and not looked kindly on.

These areas are likely why the rich, like Trump, are often under audit. Because there are so many ways they can play the system to avoid taxes. Hmm, maybe I just made your point.

It is a risk yes, but that kind of argument wouldn't make it past an IRS auditor. There is a reason many C-level staff today aren't compensated with benefits like housing and transport.

This already exists, if you're buying an expensive item such as a yacht or an airplane, it actually makes accounting sense to structure it into a corporate ownership. When you need to resell a pricey item, you might not find a quick buyer for a $50 mln item, but you might find 10 fractional buyers willing to pay $5 mln each.

For all intents and purposes, there's no tax associated with owning a yacht, either at personal or corporate level, so it's not like there's a massive loss of federal revenue here either way.

You tax capital gains differently than earned income to incentivise investment over consumption.

This is because consumption today is always more valuable than consumption in the future (the discount rate).

Can you explain that? How does does the source of the money affect what I do with it (dividends & interest vs. pay from the sweat of my brow & intellectual output)?

If consumption today is more valuable than consumption in the future, why would you want to favor doing something else today, e.g. investment?

You'd always prefer $100 today vs $100 in a year. In order to convince someone to invest you need to offer them more than that in the future.

If the discount rate is 10% (not bank interest, just how much I personally value time) then unless you offer me more than $ 110, I'd rather spend the money now.

For people to invest, discounted_expected_return[1] - capital_gains should be higher than the money in their wallets.

You can play around in excel to understand this better, with a 5% return, a 20% tax on both income and capital gains and a 10% discount rate, $ 100 in income is either $ 80 today or $ 76 in a year.

[1] Discounted for Time, Expected for Risk.

I just want to emphasize something you hinted at: "expected return" usually involves an additional discounting factor which relates to risk and risk tolerance. An investment with a fixed return of 5% (a predictable $76 equivalent in a year) is very different from an investment with an expected return of 5% but a standard deviation of +-10% (anywhere from about $68 to $84). A lot of investors would treat that as worth a little bit less, because if it happens to go down, that is felt more keenly than if it goes up.

No, capital gains taxed less than wages incentivises investment over working. Which IMO is the wrong thing, because it's fundamentally regressive - young, poor but intelligent and educated people can only work, not invest, so we should encourage them by taxing them fairly.

And you think if you remove the incentive to invest, thus reducing the capital available to corporations, the same number of jobs will exist for those young poor people to work in?

I'm pretty confident that we do tax the poor fairly - in fact, thanks to credits, the poorest get a negative tax rate that nets them sizable "refunds".

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