Hacker News Reader

Comment by JoeyBananas | Hacker News Reader

Capital gains tax is a bad idea because it hurts businesses. It takes money out of the economy and puts it into the government where it is spent less efficiently.

View on HN

I'm sure your argument is deeper, but what you have written could be said about any tax, no? Is there something unique about capital gains tax in particular?

Capital gains taxes are double taxation...the company already pays income taxes on its profit.

That would be dividends. Capital gains (in theory at least) are the result of a company investing in its future earning capacity, eg. hiring scientists for R&D, building a new factory, spending money on SaaS upgrades, etc. These all come out of the income statement as expenses, and aren't recorded as profit, so the company doesn't pay corporate taxes on them.

You'd potentially have a point for buybacks, which are usually paid off of retained earnings that have already been taxed and yet raise the share price and cause capital gains. This is the same issue that qualified dividends have though.

Those future earnings from present investments, when finally realized, will be taxed unless the corporate income tax is eliminated.

But someone who sells a security backed by the cash flows from those future investments is receiving cash before the cash flows have materialized (or been taxed). There's also no guarantee that they will ever be taxed. Take, for example, a startup that continually reinvests all profits in additional R&D, sales, and marketing, gets increasing large revenue streams, but then sells the whole company to a bigger one before ever realizing a GAAP profit. Capital gains tax is Uncle Sam's way of taking a cut on all the intermediate owners who benefit from the business reinvestment but know how to turn profits into larger market share.

By that definition, everything is double-taxation. The check I get from my employer comes out of the company profits too.

In many jurisdictions, including the United States, an employer does not pay income tax on the money they pay out in payroll.

https://en.wikipedia.org/wiki/Corporate_tax

But that money will be taxed when it's used to pay your electrician. Then, that money will be taxed again when your electrician uses it to buy something from a shop keeper. And then, that money will be taxed again when that shop keeper pays his employee. Then that money will be taxed again when the employee gets his dry cleaning done. There's no law or sensible principle that a dollar should be taxed exactly once in its entire existence.

Double taxation is when one entity is taxed double, not when multiple independent entities are taxed based on value being transferred. I also pay tax on my income before I pay it to a company for their services, but they still need to pay tax on that money.

> Is there something unique about capital gains tax in particular?

The reason why we are seeing pushes to adopt capital gains tax right now is because Bernie Sanders, AOC, et. al. want to "Tax the Billionaires." This is obviously a popular slogan because people think "who the hell needs 1 billion dollars?" But it's not like billionaires literally have 1 billion dollars just sitting in their bank accounts not doing anything. In reality, billionaires are billionaires because they make their money work for them through various investments. Capital gains tax is not "taking some poor billionaire's leftover yacht money," it's a tax on _the businesses they own_. Although capital gains tax disincentives the growth of business (which is a bad thing because we want businesses to grow,) it's marketed as a "tax on fat-cat bastard billionaires."

It’s not a tax on the business. If Elon musk is forced to sell a percentage of his shares in Tesla that’s not going to change their bottom line, it just means someone else, other than him is buying that ownership.

It’s a tax on the billionaires just like it’s intended, and they are forced to either pay themselves a salary that will also be taxed, just like poor people, in order to pay the capital gains tax. They can’t just borrow money against their gains and pretend that it’s fair that they don’t pay any taxes “because Elon Musk has no income”.

There are a lot of reasons why that may not be a good idea. First off it’s his company, he bought it fair and square and invested literally everything he had in Tesla, bet it all on himself, in my book that means he gets to keep it.

Also then anyone could buy up his shares like a foreign government that doesn’t have our best interests at heart.

I think this stuff sounds nice but when you look at the implementation it doesn’t hold up.

Yes, it sounds like it only affects the wealthy, so it's low-hanging fruit.

You can that say about any tax. The most economically efficient tax system is one where workers are taxed the least, and the profiting companies the most. Individual taxes are what stifle business, because we cannot afford to even take the risk to start small. Therefore we cannot dedicate full time to a business venture and we lose.

These massive companies use the most public resources and hardly contribute back. An entity has to exist to enforce they do, which are taxes. Massive companies like Microsoft are not stifled, they do that themselves through significant mismanagement and bullying of the market.

"The most economically efficient tax system is one where workers are taxed the least, and the profiting companies the most."

Hmm. I don't think this is true. According to the article below, you can see that economists on the right and left favor a complete elimination of the corporate income tax. In fact, the article points out that it's one of the few areas of overlapping agreement!

https://www.npr.org/sections/money/2012/07/19/157047211/six-...

It's no wonder that in progress Europe, corporate taxes are low and income+consumption taxes on the middle class are very high.

American economists are pretty much all on the right, as are virtually all American when it comes to economy. From a European point of view, the USA has no major party economically on the left. You can chose between center right and right bordering on far right.

Government spending isn’t about efficiency per se. First, there is the question about efficiency for whom exactly. Are these taxes less efficient for Microsoft shareholders (and large shareholders in general)? Almost certainly. But long-term investments in the populace, such as funding schools, can be more efficient on the whole in the long term if the investments pay off in the form of a more productive population. Second, efficiency is generally uncorrelated with equality at best and anti-correlated at worst. I’m not saying we need a totally equal society, but surely some work needs to be done to promote equality if we’re to have a meritocracy.

> It takes money out of the economy and puts it into the government where it is spent less efficiently.

Who do you think the government buys goods and services from?

Reply on news.ycombinator.com