A Minimum Tax for the Wealthy
nytimes.com
nytimes.com
Personally, I don't care if the wealthy pay higher taxes. In the recent election, 8/10 of the wealthiest counties in the US voted for President Obama, and his stance on tax rates was clear. If those voters are willing to pay higher taxes, I'm fine with that.
But what I really hate is the class warfare and populist messages driving fiscal policy. With the threshold at $250k, the tax hikes would still only bring in enough added revenue to cover 8 days of federal spending. And "fair share"? The top 5% pay 40% of the federal income taxes collected. In order to generate the kind of revenues that would make a significant impact on the deficit, taxes would have to go up across the board, which in turn would lead to an economic slow down.
Does that include the restoration of pre-Bush capital gains tax? Because I'm sure that would add up to a lot. In fact, I think that's the biggest thing that the ultra-rich have become addicted to in the past decade.
The idea of taxing investment income leads to a lot of terrible, perverse outcomes. It steers wealth towards being locked up in big companies and funds, since this is how you compound investment fashion without that money being repeatedly taxed. It also makes sure the incentive to invest on one's own accord belongs primarily to capitalists, since the tax naturally compounds when you buy and sell on your own account. Non-capitalists must allocate their money in one of a handful of government-approved fashions, or be eaten by repeated capital gains taxes for things as simple as rebalancing.
Capital gains taxes seem motivated by a broad desire to soak the rich, but you will find very few economists on the left (or the right) supporting this idea over alternatives like a progressive consumption tax. Capital gains taxes are one more example of a clueless "progressive" idea leading to outcomes that are poor to both progressive and non-progressive perspectives.
NPR's Planet Money once brought together a bipartisan panel of economists and asked them what they agree on. Consumption taxes as a replacement for investment+income taxes got universal support: https://nathensmiraculousescape.wordpress.com/2012/08/08/pla...
The effect of a consumption tax would be to never tax investment income until it is spent on something that isn't investment.
Beware Krugman; he is brilliant but sees himself as a pundit in service of a political agenda, and has baldly admitted as much himself. I would be surprised if he disagreed with consumption taxes on grounds other than political expediency. I don't believe that particular question is raised in the posts you link.
Your last comment is largely an ad hominem. Consumption taxes are typically regressive.
Edit: your last link did not say what you said it said. It did not say to replace capital gains taxes with a consumption tax. It didn't mention capital gains at all.
"If the IRS grabbed 100 percent of income over $1 million, the take would be just $616 billion. That’s only a third of this year’s deficit." [2012] -- http://www.forbes.com/sites/danbigman/2012/04/03/john-stosse...
The challenge is that when you change the rate, people change their behavior.
Here's some interesting data showing the historical relationship between behavior and capital gains policy over time:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
If you assume currently capital gains collections are $150B, increasing them 33% will add $44B.
From a pragmatical pov, that just doesn't seem like much. And that's assuming there's not a contraction in capital gains harvesting, which wouldn't square with history.
Look, I'll admit, I'm not unbiased here. I generate 80% of my income from churning long-term assets.
I sold a company that I bootstrapped a few years ago, and we got a good price.
I'm able to generate about $120k per year after-tax. My goal is to never touch the principal and live off returns.
Now, I'm bootstrapping my next startup... The $120k allows me to work 1 day a week consulting to "plug" the gap between my family's spending and my income. The other 4 days, I work on bootstrapping my startup.
If taxes go up, that will cost me an addl $6700 per year in taxes.
So my choices are...
1) take more consulting work -> Won't do this because my startup needs my time and I'm already working 60 hr days
2) try to generate higher returns, -> Not going to do this because I'm already maxed out with the risk I feel comfortable with
3) cut back my personal spending, -> Yes, this is what will happen.
For the affluent retired, I suspect many of them will choose to cut back too.
From where I'm sitting, the tax policy is going to hit me fairly hard, will only produce an additional $44B in taxes, and will probably cause a recession. So it doesn't seem very wise.
High-income people are frequently wealthy (outside of incomes derived through lottery winnings), but the two are not equal in their political views - those sitting on their wealth will be in favor of income taxes (since they barely have any), those who work for income will lean in favor of asset and consumption taxation (property, estate and sales taxes).
However, the anecdotal evidence of "stored wealth vs current income" tax is there, notice how "let's-back-tax-everybodys-income" Prop-30-happy California is also home to "dont-you-dare-to-raise-taxes-on-my-mansions" Prop 13. My original remark was to point out that wealthy people and high income people are frequently advocating opposite causes.
Mansions? Hardly. More like "Don't raise taxes on my tiny tract home through the roof based on ridiculously inflated real estate values."
Maybe in a state that didn't have both high sales taxes and high income taxes a cap on property taxes wouldn't make sense. But in California it does.
Also, it isn't clear to me if you're referring to the "Buffet Rule", or to a scheme like the one proposed by Buffet here. In any case, he admits that even if we did the first part of what he is proposing (the minimum tax for the wealthy), there would still be work to be done.
"You hear a lot, in books, in the blogosphere, among pundits that the middle class is being hollowed out, the incomes for all but the top 1% or maybe the top 20% are stagnating; that the gap between rich and poor has grown inexorably; that the American dream is dead"
"[these claims] are basically wrong. And that's what 10 years of research by myself and James Sullivan at Notre Dame has shown. If you measure incomes better, accounting properly for inflation, median incomes have gone up by about 50% since 1980. And if you look at consumption, it's gone up by a similar amount over that whole period--though exactly when it went up is slightly different from the income pattern."
http://www.econtalk.org/archives/2011/10/bruce_meyer_on.html
That's because they don't expect to pay higher taxes. When you have enough money you can route your income through offshore shell corporations and paper banks in the Mediterranean. Taxes are for the little people.
Entrepreneurs are some of the most efficient allocators, because they are decision makers with a vested interest in the outcome. This concept is so rare as to practically not exist in the public sector.
I'm not opposed to higher taxes. I am opposed to throwing money, mine or anyone else's, into a black hole. Convince me that the extra tax dollars will be spent wisely and that society will see a net positive return at some point in the future, and you have my support.
That said, Californians complaining about government isn't surprising, they have the worst possible state government of the union. Their bias is understandable, but entirely their own doing.
So government is the best friend of man's rights, while libertarianism is the biggest enemy. Libertarianism = corporate feudalism.
Must be all the rich people that live here; they ruin everything!
I'm unable to reconcile your comment with what I understand to be John Lock's theory regarding property rights. They seem incompatible to me.
And, banks are a lot less efficient at deploying capital than enterprises internally, or private investors, even in good times.
So what? It's their money.
you can either share some of your money or lose all of it.
Ironically, it's this sort of OWS mullarkey that's helping to prolong the environment of economic uncertainty that's hurting us so badly today.
Your comment is extremely shallow and false to boot. It belongs on Rush Limbaugh, not on HN.
if (age != wisdom):
print "forensic"comic.
I'll concede that my last comment was inappropriate (it's super-basic Python, not a proof).
Can you at least concede that loose talk of beheading capitalists is, at the very least, counter-productive to what we should all want, which is a robust recovery?
Are you really advocating that people like PG and Elon Musk should be murdered without due process for being successful?
If not, why say so? Even solely as a rhetorical device, it's extremely distasteful, polarizing, and makes a rational person discount anything else you might have to say on the matter.
Or maybe you and people like you have no intention of really following through with these threats - they're just attempts to bully political opponents into adopting your tax policies. So, we're just talking soft-extortion here, not outright plans of murder and violence.
How about "evil" financiers like Warren Buffett (or is he "one of the good ones"?), or the other bankers and financiers - many of whom heavily donated to Obama, some of whom even served in his administration. Should the chopping block be reserved just for them? Do they get a pass if they donated to the right political parties and organizations?
This extreme demonization of capitalism is really troubling to me, and I think it helps explain the sluggishness of the economic recovery. The holders of capital are a bit spooked, and rightfully so.
Uh huh. The name of your method was "proof". I've been on HN for four years and you think I don't know how to read and write python? I'm a lisp hacker who came to this place back when it was about lisp hacking for hackers. Now, right wing business douches like you come along spouting talking points straight out of the corporate PR department.
First of all, I did not threaten anyone with the guillotine. The simple fact of the matter is that if the wealthy keep spouting bullshit designed to fuck the poor (which is all that your kind of speech is) then they are going to get guillotined. Don't think the reincarnation of Robespierre is not chomping at the bit to chop your neck.
Naturally, I have no interest in killing pg or myself or any other rich people. However, I have an interest in the survival and success of the human species.
These CEOs that you cite should be afraid. Their poor hearts are chilled at the possibility of a tax raise on their 14% tax burdens. Boo hoo! I am making the point that a tax raise on a billionaire is warm and balmy next to the ice cold steel that you get on the chopping block.
If these CEOs, the richest in all of history, keep acting like idiots they are going to get us all killed. And we'll deserve it. Fuck us if we are so myopic and pathetic that we can't create a rational vision of a human future to build and instead surrender all our autonomy to some metaphysical libertarian nonsense that is widely ridiculed by Nobel Prize winning economists.
In conclusion, welcome to HN. There are a lot more people here than just corporate blowhards and their nerd-slaves. Hacker culture still has some blood in its veins.
This post written in Vim on Ubuntu (not that I'm a fan of Ubuntu or anything. But apt sure is nice!).
Also, just to clarify, I've been an independent freelance programmer/serial entrepreneur for over 10 years - I've never worked for or held an interest in a big corporation, and my bank account balance looks a lot more like an OWS member than a VC. I'm just not gullible enough to fall for this class warfare nonsense, or blame others for my success or lack thereof.
Tell you what: when OWS rounds you up, I'll have a talk with my fellow plebs and see if I can get you a pass.
I'm not an Occupier. I advocate meritocracy. And meritocracy doesn't happen when you deny opportunity to the majority through economic policy that keeps the plutocracy entrenched.
Occupy is a great example of how sad the underclass is. Look at how pathetic they are. They are completely irrational and lost and have no idea what to even do. Of course, they're just sheep. But if the Goldman Sachs of the world keep growing the numbers of that herd (and all signs point to yes) then eventually there will be enough sheep for a Fuhrer to come along and point them at the enemy.
BTW, pg doesn't bother yelling at anyone here.
As you point out, Apple is sitting on over 100 billion, and countless other companies are sitting on amounts of capital that were previously unheard of. You can't honestly argue that it's a coincidence that all of these companies are simultaneously gun-shy to invest in growth.
When a millionaire earns an extra million dollars, he or she puts it somewhere - into stocks, or bonds, or other investments, and sometimes, rarely, keeps it in a bank account for years on end where it sits and earns no interest. With the exception of the bank account, all of these are capital re-investments that stimulate the economy in some way.
http://www.slate.com/articles/business/project_syndicate/201...
PS: It's important to include failures and opportunity costs when you talk about Entrepreneurs or your basically saying lottery winners are great at allocating capital.
If you keep feeding a monster, all you get is a bigger monster.
Whether you feed or don't feed the monster doesn't impact the monster's size. If you stop funding government, all you get is a larger debt.
As far as I'm aware, the majority of the money went to prevent spending cuts in education budgets, and the rest went into the general budget (http://voterguide.sos.ca.gov/propositions/30/analysis.htm).
Hyperbole is not necessary to make your point.
Dollars are fungible. Dollars directed to one particular budget item (education budgets in your example) simply frees up other dollars to be used elsewhere (pensions and benefits in the parent comment).
You needed a wake-up call after the shenanigans we've seen in Sacramento over the last decade? They won't even spend the extra money. They'll use it as leverage to issue bonds. Tax increases in California have become mere guarantees taxes will be raised yet further at some future date.
This is baseless dogma. Government may not always be the most efficient allocator, but it's not always the least efficient either. In cases of positive and negative externalities, the market does not allocate ideally.
We need to move past this dogma of "All government is bad government" so that we can separate the good from the bad. Good rules are helpful. Bad rules are harmful. When we have low expectations of our government, we will unsurprisingly have low outcomes.
When confronted with situations like the one described above, any rational person would wonder why we want higher taxes, when we should really be focusing on reforming our broken social programs. Only then, when we take legitimate steps to reform our broken social programs, should we be considering higher taxes.
The ultimate difference between private firms and government is that a private firm which is seriously screwed up will go out of business. A government agency can continue being dysfunctional for a long time (e.g. the Office of Thrift Supervision). The other big difference is that when a government entity is incompetent, it tends to hurt others a lot more than when a single commercial firm is incompetent.
It doesn't matter how inefficient government is. Government is the only entity that works for the disadvantaged.
Government is also the only entity capable of addressing collective problems.
oh rly? http://www.nps.gov/partnerships/fundraising_individuals_stat...
Like Red Cross or local church's soup kitchen, how does their activity not benefit the disadvantaged?
Who is the customer of a private charity? Who is the product of a private charity?
When I'm doing volunteer work, I'm working for the interest of the disadvantaged. My synagogue collectively works for the interest of the disadvantaged through their social action programs. My town's interfaith food bank is run very well and addresses a collective problem without taking a dime of government support.
Government plays a role in helping the disadvantaged but it doesn't play the only role, it's not necessarily the most effective role, and since it involves taking money from people involuntarily, we should make damn sure the help's truly necessary and there's not a better, voluntary way to do it first.
Government actually responds to the desires of the disadvantaged so the difference is infinite.
Volunteer organizations only serve a very, very narrow sliver of the disadvantaged, and they usually don't work to eradicate the disadvantaged but rather to exploit them to perpetuate their institutions.
The customer of the volunteer organization is the donor or charitable person. They dictate the behaviour of the organization. The product is the disadvantaged person, who is used in sales pitches and so on to convince the customer to hand over their credit card information.
Just because the disadvantaged are used by private charities to extract donations from the wealthy doesn't mean that the volunteer organizations are working FOR the disadvantaged.
Simple fact of the matter is that working for the disadvantaged would include a lot more responsiveness, a lot more prevention, a lot more intelligence, a lot LESS volunteer work and a lot more professional work. (volunteer work is poverty tourism 99% of the time--the poor don't need people handing out soup at soup kitchens. They just need money to buy their own soup and a social system that gives them some opportunity to become self-sufficient.)
First, if government has been responding to the desires of the disadvantaged all along, it would seem that a good portion of the poor and disadvantaged want to stay poor and disadvantaged. I don't believe that's the case - so either the government hasn't been responding to the desires of the disadvantaged or the government has been rather ineffective at it.
Second, your description of a volunteer organization is so ridiculously counter to reality, I'm certain you've never spent time working for one. Here's how something like a county food bank actually works: civic organizations (mostly churches, but also groups like the Rotary and Lions Club) organize food drives and solicit donations. Grocery stores and restaurants donate food as well. Volunteers sort and bag groceries and man the food bank during pickup hours - anyone who wants the food gets the food. (Other volunteers drive food to elderly or disabled people who can't make it in.)
No one is paid, no one even has the ability to handle credit cards, and no disadvantaged people are paraded around in fundraising pitches. Donations of food mainly come from everyday people, and are widespread throughout the community. We serve a lot of people in our county, not a 'very, very narrow sliver'. You calling the work done by volunteers 'poverty tourism' is just you being an ass.
As for whether the food bank encompasses 'prevention' - no, it does not. There are plenty of other community organizations that do, though. The biggest and most effective are probably the marriage counseling and parenting classes provided by local churches to their members.
God the literalism in the software industry is just pathetic. It's like all you ever read is technical documentation.
I'm imagining you reading Camus and then trying to educate him on the dictionary definition of "absurd"
"Excuse me sir, but let me educate you about this extremely fucking obvious fact that everyone already knows while I completely miss your point because I'm dense as lead"
The Red Cross, the Salvation Army, the Catholic school and hospital network (CRS), Doctors without Borders, Lutheran World Federation, the ACLU, etc etc etc.
The product of doctor's without borders is better health for the disadvantaged. The product of the red cross disaster relief is comfort and care in times of distress. The EAPN main goal is to elevate the disadvantaged above their current situation and prevent the cycle of poverty.
The degree to which taxes are progressive doesn't determine the total tax collected, or the amount the government expends, it determines how that burden is applied to people. What we should really be comparing is: does an individual allocate their first $100,000 of income with any different efficiency than their second, third, or fifteenth $100k of income? If you give $1000 to a person who makes $50,000 a year, and $1000 to someone who makes $1,000,000 a year, who will allocate that money better? I think most of us would feel intuitively that the person making $50,000 would use it "better", but there's fair arguments to the contrary as well (including figuring out what "better" means). But only when you ask that question are you asking about progressive taxation, not just tax burden as a whole.
The notion that taxation should be predicated on whether the government or the person can 'better use' the person's money is damn scary.
You want me to choose between anarchy or <insert your form of government here> where you've asserted that it doesn't matter what form of government I choose because they are all the same.
By introducing variability of how much the government takes total it adds another question that is being used to persistently distract from the question of progressivity. When people say "the wealthy should bear a larger portion of the burden" a typical response is "we should be spending less on government!" – which is no response at all, just a distraction.
You said: "The notion that taxation should be predicated on whether the government or the person can 'better use' the person's money is damn scary." – which is EXACTLY what I was pointedly NOT asking. The degree of progressivity in a system does not determine whether a person or the government has the person's money, but WHICH people have how much money.
I can accept theoretically that you can separate the progressive structure of the federal income tax from spending decisions but in reality it is pretty hard to solve our budget problems by simply taxing the 'rich'--at least if you use the $250,000 figure that is most commonly used.
Here is a nice calculator you can use to see the difficulty: http://splitwise.com/taxes/
You keep giving these pundit talking points – the talking points of pundits have been rehashed enough, we shouldn't be using them here, it's not a productive form of discussion. Are we men or are we pundits? I, sir, am a man! ;)
Why is it scary? Your tax dollars go to the government because other citizens wish their tax dollars to go to the government, because they believe the government is the most efficient way to provide certain goods. Basically, they believe the government can spend their money better than they can, at least a certain amount of their money spent for certain purposes. Taxes aren't completely consensual, of course. They're government policy, and like any government policy, they can't depend on unanimous approval. However, the will of the people, as expressed through every democratic system on Earth, does support some degree of taxation and government spending. The natural question for a voter to ask when their vote affects taxation is whether it is more efficient to accomplish certain things through the government rather than through private spending -- essentially, whether the government can "better use" money for certain purposes than taxpayers can themselves. What's wrong with that?
Suggesting that the only limiting factor is whether the government (even a democratically elected one) thinks it can use the money better than you can, really isn't a limit.
When the people find that they can vote themselves money, that will herald the end of the republic. -- Benjamin Franklin
(it's primarily retirees who are now a combination of state beneficiary and investment income earners, people who work for government or direct vendors to government, and is funded by people who make most of their money as capital gains or carried interest.)
This is true for both major parties, and has been true for at least 40 years, though.
Socially and intellectually, the people I mostly identify with are professionals and other middle to upper class wage earners (doctors, lawyers, engineers); the exception being startup equity. And the people who earn wages (vs. capital gains) in this bracket pay the highest marginal taxes of anyone.
If tech people weren't able to shift income into capital gains, 50%+ taxation would be a much bigger deal.
Not if they're burning through someone else's money. Then it's as big a shitshow as government.
What a shitty, smug attitude to have towards the many very bright and motivated people who work in the public sector. They're not all perfect, but neither are all entrepreneurs. Not by a long shot.
This.
The thing that really gets me are the people who should know better, like Warren Buffet. You read the article and he's making straw man arguments about billionaires stuffing their cash in mattresses because their taxes are too high -- nobody is arguing that. The real problem is that taxation is economically distortionary and the higher you raise the rates, the greater the distortion. Because taxes are only due when assets are sold (and in the meantime the owner is collecting asset appreciation on the portion of the value that would have been due in taxes), capital gains tax encourages investors to hold their existing assets rather than seeking out more economically efficient ones. It encourages them to invest in more stable assets that can be held for a long period of time to defer taxes, rather than taking a risk on a startup that could cause tax to be due sooner when there is an IPO etc.
Or the tired numbers about how the rich are a lot richer now than they used to be and their taxes are lower, without providing evidence of causation rather than correlation. I mean sure, the richest might have 4.5X as much as they did twenty years ago instead of 5X, but is that really the big problem? Or is the real problem the regulatory capture and Wall St. shenanigans that allow the rich to double their money every five or ten years while Main St. loses their retirement fund to the same stock market?
At the same time, everybody just assumes that if you want to collect more tax money from the rich, raising the capital gains tax is the way to do it. Or the same with corporations and corporate income tax. But both of them are way, way too easy to avoid and for the same reason -- they depend on measuring profit, and it's gotten to be trivial to make an entity look unprofitable on paper. Raising the rates won't help that, it'll just push more people into tax shelters.
If you want to tax the rich and corporate entities then you have to tax the stuff they don't have a choice about doing. Sales tax, but the tax is paid by the seller not the customer. Income tax, but the tax is paid by the employer, not the employee. If you want to do business you need employees and customers, so they can't avoid paying taxes with shelters and loopholes. That's how you tax the rich. Capital gains tax is just a shell game that encourages accounting tricks and offshore banking.
Given a system like that I'd be curious what the numbers might really look like. How high a tax would we need? What would the actual tax burden look like for different amounts of cash-back? Could we replicate something similar to the progressivity we have now?
But there's still distortions. Consider high Shipping & Handling fees – these are often done because S&H is considered a service, and so sales tax is not levied on that portion of the cost. But a $0.01 book with $7 S&H is clearly bullshit. But who is there to call the seller on that bullshit? Why are goods taxed but not services? I've never been clear on that.
The most awesome tax I have ever seen is auctioning short license plates (done in the middle east and Hong Kong) -- pure profit for the state, and artificial scarcity created by the state. In fact, it's "better" for me to own the "1" license plate if everyone knows I spent $10mm on it than if they thought I got it by being lucky.
(In general, I'd like to see more VAT + poll + etc. taxes vs. income or investment taxes. And taxes on things we want to discourage, like pollution.)
It seems like the math is fairly straightforward, but dependent on how much money you need to raise. The big question is to what extent you would want something like that to displace other taxes. If you wanted to displace all other federal, state and local taxes then a sensible rate would likely have to be in the nature of 20-30% (depending on the size of the exemption and how much money the government is to spend).
>Could we replicate something similar to the progressivity we have now?
It seems to me you could achieve an arbitrarily large degree of progressivity by playing with the size of the exemption. In the extreme case you pay everyone something like $50,000/year and then have an extraordinarily high tax rate, but then you get a different kind of distortion where people quit their jobs because they can live off the tax rebate.
On the other hand, having a substantial unconditional rebate (not that large, but say $5000-$10,000/year) would eliminate the call for many need-based programs, because those in need would then have that money with which to buy food and shared accommodations, etc. That would significantly reduce government expenditures for those programs and allow such a large rebate to be had without the need for a prohibitively high tax rate. (It would also eliminate several redundant government bureaucracies dedicated to administering now-redundant need-based programs.)
> Why are goods taxed but not services? I've never been clear on that.
I think it's jurisdiction dependent. But as to why, it's almost certainly only because that's what has been successfully lobbied for by someone. There isn't any sound economic rationale unless you want to encourage the purchase of services over goods for some reason, at the cost of exactly the sort of distortions you're talking about.
In California the sales tax doesn't apply to clothing under a certain price or food staples. Since poor people spend a high percentage of their money on these things it's not a big burden for them.
If they want to buy booze or a big screen TV they can pay sales tax like the rest of us.
http://en.wikipedia.org/wiki/Alternative_Minimum_Tax
Although when anyone in my lowly tax bracket has to worry about it, it's pretty sad.
Oh, I thought not.
http://www.huffingtonpost.com/2011/10/12/warren-buffetts-inc...
The problem is not that the wealthy won't invest if they are taxed at higher rates. Its that they will have LESS to reinvest with after gains are taxed. Its strictly a matter of who you believe distributes resources more efficiently: the government or the people.
The only known way to answer those questions is by asking the capital markets. We all share the goal of best utilizing every citizen to raise our collective standard of living. More broadly, it is in everyone's best interest to efficiently use every type of scare capital resource we are afforded. Waste helps no one.
Now, the fact that the capital markets are distorted and borderline useless today is another discussion. Higher taxes won't solve that problem either.
Makes sense, but only after you've paid off all or the vast majority of your debt, which means for a decade or two you'll need to have the income be significantly higher than spending, and pay off the debt with the difference.
However, the current attack against raising taxes (from their current historically low rates) only raises the debt and weakens our fiscal foundation.
And if you are for a war, why don't you buy a gun and go fight?
You know, I've never had a problem with the income taxes that I pay. They're taken out of my check and I work with what's left. I never think "oh man, they're taking my money" any more than I think "oh man, I totally deserve to win the lottery".
I do think there's something about earning money through investments that makes paying taxes "feel" more like your money is being taken away from you. It's not automatically deducted. It's not there every week. Sometimes you lose money. You have to pay it all at once. Taxes are not part of the mental calculation of how much you made on that sweet stock investment. I think that's WHY the rates are lower. People just feel like the rates SHOULD be lower. But it's a psychological effect. When I look at the economic effects of the current tax scheme on a large scale, it seems to me that this kind of benefit is just a giant tax dodge.
Let's say that the tax rate is structured in a way that the cost of doing productive "work" with your capital is 30%, but the tax rate for just shuffling the money around through a bunch of investment vehicles is %15. Well, you've suddenly got a free %15 to play around with. And if you only need to return %10 to be considered a pretty good investment, then it seems like you really can't fail as long as you've already got enough money to play a different game than the rest of us. But those guys are already orbital, and the rest of us can never achieve escape velocity. I'd prefer to not live in a cyberpunk future where the rich get their own orbital gardens and the rest of us have to live in the ruins they left behind.
1) inflation (if you buy a stock for $100 and sell it 10y later for $120, you actually lost money, at least for every 10y period I know about)
2) invested dollars have a higher multiplier for economic activity than wages earned and then spent, so raising capital gains rates hurt the economy more ("have higher deadweight losses") than wage taxes. Poll taxes and consumption (VAT, particularly) taxes are even better, though.
3) people who have enough money to make meaningful investments tend to vote more reliably than people who earn mainly wage income, and also are in a better position to donate to political campaigns.
I'll leave it as an exercise to the reader why that is an absurd argument.
a: "I want the administration to increase funding for NASA"
b: "Shut up! Send them money yourself!"
If so, I propose this HACK to solve the tax issue:
Create a site that disseminates information on how small businesses can avoid (not evade) taxes using these approaches that are typically only known to advanced acolytes. Evolve processes that significantly reduces the cost for avoiding taxes effectively. (I imagine that that these complicated loopholes aren't actually that complicated, just that the knowledge is rarified.)
If many people, including a large portion of the upper-middle class, reduced their tax liability, this would significantly increase the amount of attention paid to this issue.
-- And it took a constitutional amendment to tax income.