No, I'm not talking about capital gains taxed at some figure you've arrived at. I'm talking about taxing capital gains as income. Since you're convinced that income tax is only 7.7%, that's the same thing, right?
So it's settled then. Dismal and I support taxing capital gains as income.
Or is it that you don't believe capital gains is presently taxed lower than income, after all?
Capital gains
are taxed as income.
There is just a special rate.
Given that we were specifically talking about tax rates, the fact that it's a special rate means it's
not taxed as income.
The proposal is still the same. You say income tax is 7.7%, lower than capital gains. So we should encourage investment by taxing capitals gains as if it were income. Do you approve? Or is your claim that income is 7.7% and thus lower than capital gains, suspect in some way?
I also would tax them at the same rate as earned income. Capital gains are nothing more than inflation on capital investments. We have just given this type of inflation a different name and branded it as ’good' and the other type of inflation ’bad.' Unless anyone can show that decreasing the tax rate on capital gains has increased investment and that this investment has benefited society, there is no reason for it to exist.
How could it not reduce investment? Higher capital gains tax collections means investors have:
a) less money to invest
b) lower returns on a given investment
Because tax is a trade off. Lower it here and you have to raise it there, to maintain the same revenue. For a) the easiest route to take is to create a specialist investor class, and make them as rich as possible at the expense of everyone else. So, exactly as you suggested, eliminate capital gains tax, make the progressive income tax system flatter and less progressive. After all dropping tax on the investor class can only encourage investment if the money that costs is made up by someone else, who is not an investor. Hit the poor as hard as possible, drive demand through the floor, and free up the cash for speculative investment.
Then there is b). The only way in which that could hurt investment is if it would cause investors to do something else with their money, to a greater extent than taxation levied elsewhere. Given that, in recent years, we've seen the consistent spectacle of investment money in search of yield, the case for lower capital gains is less strong than it could be.
More importantly we need to distinguish between different kinds of yields. Investor-class investment tends to be speculative, big ticket high-risk, high-yield investment. They're looking for comparatively large short to medium term returns at medium to high risk, in which they can develop expertise. What we need is smaller-scale lending and investment for small to medium sized firms, and large scale safe lending. The people with the highest propensity to invest in those are the middle classes, and the more affluent poor, the same sectors that produce the most entrepreneurs. They're generally lending for reasons tied up with security, planning, and personal connection, rather than a search for yield, which means they're far less sensitive to tax. What they are really sensitive to, however, is demand.
Starving them of funds and driving down demand in order to line the pockets of an investor class, is a really bad idea.
