2. Higher rates make for less efficient economics, because people will hold on to poorly performing investments longer.
3. A big chunk of capital gains are actually inflation.
1. The higher the labor tax rate, the fewer people will work.
2. Higher labor tax rate makes for less efficient economics because workers will prefer lower-paying (less stressful) jobs.
3. Wage tax brackets are not indexed for inflation.
Given these, why should the tax code prefer capital ownership to labor?
2. are you sure about that? Lower paying jobs tend to be more stressful.
3. they are last time I looked, though those things change over time
The rebuttal is to simplify the tax code as to eliminate loopholes, such as preferential income taxation.
You're right and I was mistaken that tax brackets are indexed for inflation. I'd support indexing capital gains if it eliminated their preferential taxation.
This is what you said and is basically untrue. It is not a gross argument, we are talking about how taxation motivates people. The fact that wage income is taxed does not seem like it would make people work less.
This may be different if we ever start a significant movement towards a post-scarcity economy where automation makes necessities so inexpensive that people with even a small amount of capital do not need to work. Then you might have to do strange things to incentivize people to do the few jobs that need humans.
If higher tax rate pays for better infra and healthcare, more people are likely to work.
2. Higher labor tax rate makes for less efficient economics because workers will prefer lower-paying (less stressful) jobs.
Isn't labor tax progressive, so bottom earners do not pay a high rate. Higher paying job might have more stress but it's offset with more disposable income and there is strong incentive to invest this disposable income into lowly taxed capital gains setup in the absence of which either people will hoard this money (where it sits doing nothing or hold onto worse performing assets) or spend it ( increasing inflation (which isn't good for economy)
3. Wage tax brackets are not indexed for inflation.
Yes, for higher wage earners there is strong incentive to purchase stocks/real estate to enjoy lowly taxed capital gains.
If we reduce points 1 and 2 to their logical conclusion, capital gains should not be taxed at all. This is idiotic. Due to the structural advantages individuals with money have investing, you'd basically be creating a system where people with money would capture almost all of the wealth.
The end goal shouldn't be the most efficient economy possible, it should be the highest standard of living for the individuals in your country. To that end, a certain amount of taxation is necessary.
FWIW a great many people believe that capital gains should not be taxed at all. And while there are certainly fine arguments against that point of view, I don't think it's fair to say that "it's idiotic" when their p.o.v. is based on solid economic theory.
If you don't take into account what is being produced and why, you are left with a line of tautological reasoning that more productivity is good because more productivity is good.
The reason this is idiotic because there are a lot of ways to maximize productivity where the vast majority of people do not benefit. Not only that, but there is absolutely no reason that maximizing the productiveness of an economy results in maximum utility (in the philosophical sense).
Even if you could demonstrate that economic productivity was positively correlated with (philosophical) utility, you'd have absolutely no guarantee that utility would be distributed equitably. You could literally have 1 super happy person with everyone else on the planet enslaved in perpetual (productive) agony.
That's even before you get into the fact that maximizing production now probably ends up creating a hellscape of a planet tomorrow.
Of course you could argue that you can account for all of this using negative externalities. In that case you might as well tax capital gains to account for the negative externalities. I suppose you could tax something else, like lifetime earnings, but the point is I feel comfortable making the claim that not taxing capital gains is idiotic.
Having a more efficient economy means there's a surplus that enables resources to be expended on environmental and social concerns. Hungry people don't care about those things. There's a reason poor countries tend to be the worst polluted.
Lastly, efficiency isn't about maximizing production. It's about maximizing productivity, i.e. production/cost.
What evidence have we ever seen that allowing wealthy individuals to make more money results in increased utility? There is literally no reason to believe that any of the marginal increase in resources would be expended on environmental and social concerns.
The only reason you could justify eliminating capital gains is if you literally believe all government is evil.
SpaceX is a modern example.
Historically, people of great wealth have been able to invest in great projects. Scientists historically have been wealthy people. The guy who won WW2 was a wealthy man who invested his fortune into developing radar. Many historians believe that radar shortened the war considerably and saved an awful lot of lives. Wealthy people donate a ton of money to universities to fund research. (UW has a Gates building and an Allen building.)
> on environmental and social concerns
The Gates Foundation, for a modern example. For a historical one, see the Carnegie libraries.
Similarly, charitable donations are generally tax deductible so again, if anything, capital gains taxes serve to encourage people to allocate more of their returns to it.
> charitable donations are generally tax deductible
I find it ironic the complaint that wealthy don't use their money to help social causes and yet complain that such help is tax deductible.
Arguing that the space industry would be better off with less government funding and more private wealth is akin to arguing the earth is flat.
And I'm not "complaining" that private charitable donations are tax deductible, I'm observing that because they are tax deductible they're not particularly likely to be reduced by the existence of taxes.
If you want only government funded research, take a look at the old USSR. They produced a few notable advances, but nothing like the quantity produced in the US.
I'd prefer the direct route of funding them from the public coffers than waiting on the largess of rich people to fund them decades after their fortunes have been made.
1. rockets
2. radar
3. jet engines
Government research is directed by politics, which usually means safe, non-controversial topics, and money directed at politically connected scientists. There's nothing "efficient" about that.
Or maybe you trust rich folx to call the shots? I don't. The world's moved on from monarchy.
Economic theory can also address questions of equality. There are efficient ways to redistribute income and there are less efficient ways.
Economic theory can also address environmental questions. There are efficient ways to address resource usage and there are less efficient ways.
Philosophical and ethical concerns are indeed outside the realm of economics. That part is true (which is why I said "there are certainly fine arguments against that point of view"). But much of your rebuttal understates the range of topics than can be reasonably addressed by economics.
> Economic theories that only looks to maximize economic productivity while ignoring philosophical or ethical concerns are idiotic.
I did not claim that economic theories cannot address philosophical or ethical concerns, I claimed that economic theories which do not take these in to account are idiotic.
I am not an economist, but I took quite a few economics classes in college. I am confident that I know enough to say that eliminating the capital gains tax is not a policy that would be pursued by someone looking to address concerns of regarding equality or the environment.
The economic theory that supports the elimination of capital gains tax is one that focuses on maximizing productiveness above all else. It's the type of policy you come up with if you got your hands on a macro 101 textbook and you forgot other people exist.
Your confidence is misplaced. On equality one might convincingly argue that by lowering cap gains rate we could increase the overall growth rate of the economy. By doing so we could increase other taxes on the rich without leaving them in a worse state than they would have been in the lower growth economy. We can then use this additional tax revenue to fund social services or otherwise redistribute income to reduce inequality.
On environmentalism, one might argue that we should cut cap gains taxes and, in order to make up the lost revenue, institute a carbon tax or other tax on environmentally damaging activities. This could have a profound positive impact on our environmental footprint.
Now, I'm not necessarily saying these are good ideas. But they are also not, prima facie, idiotic (to use your word). They are complex questions uncertain impacts. Reasonable people can disagree.
Your assertion about "macro 101 textbook and you forgot other people exist" is also quite strange when you consider the fact that I'm not talking about college freshman's stoner thoughts on optimal taxation of capital. I'm referring to the ideas of professional PhD economists who are well respected in their fields.
My argument accounts for this:
> Of course you could argue that you can account for all of this using negative externalities. In that case you might as well tax capital gains to account for the negative externalities. I suppose you could tax something else, like lifetime earnings, but the point is I feel comfortable making the claim that not taxing capital gains is idiotic.
I mean, ideally we would have a system where negative externalities were taxed appropriately, however that is a monumentally complicated task, and I somewhat doubt it could be done efficiently. This is especially true when you start dealing with externalities that arise from situations like "the reason why eliminating capital gains tax is productive is because people will continue to reinvest their money because it's the most productive use for their money," where reinvest effectively means you end up buying more and more of the economy.
What regulations do you enact to prevent this from devolving into feudalism? How do you ensure that system you have put in place isn't destroyed by regulatory capture? What if having a ton of money is a negative externality in and of itself, even though it means you contribute more efficiently to the economy?
I know that capital gains tax is inefficient, but it's an easy tax to levy, it's hard to evade, and politicians can understand it.
Removing capital gains tax and accounting for the externalities is not idiotic. However, removing capital gains tax in our current system would almost definitely be an idiotic move.
Wouldn't that also be true if they don't have alternatives to invest? What are those alternatives?
2. Higher rates make for less efficient economics, because people will hold on to poorly performing investments longer.
Why does it matter to the government/citizens if some investments are held onto for too long? What hit would the gov take?
3. A big chunk of capital gains are actually inflation.
So?