Capital vs. labor: who risks more?
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Capital vs. labor: who risks more?
1–10 of 61 posts
Re: Capital vs. labor: who risks more?
#2This article is quite odd:
income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages
This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it.
The actual reason capital should be taxed less than income (specifically, at 0%) is because there is no reason to tax savings. If you tax income only, you tax a person who earns $100 and spends it today the same as you tax a person who earns $100, saves it and spends it tomorrow. When you tax capital, you charge the second person a higher tax rate.
This is doubly true in the presence of inflation - if a person earns a 1% nominal return in a 1% inflationary economy, then they break even. If you impose a capital gains tax, suddenly their rate of return needs to exceed (inflation + cap gains) just to break even.
Re: Capital vs. labor: who risks more?
#3"One justification for this is that investors risk losing much or all of their capital."
Huh? Whose justification?
It is naive to think that our tax code is based on how much people risk (ignoring how ridiculous quantifying that is). Is this what schools teach or something? Where does the author even get such a notion?
Re: Capital vs. labor: who risks more?
#4This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…
Exactly. The way I see it, if someone has a large pool of wealth, then they have already been taxed when they earned it. Taxing capital gains is double-dipping.
Furthermore, I don't see how we can justify having a very low interest rate set by the federal reserve in the interest of encouraging investment, but then decide to tax capital gains more which would discourage investment. However, trying to make any sense of our tax system is probably not a fruitful endeavor :)
Re: Capital vs. labor: who risks more?
#5This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…
There's an assumption in your argument that the earnings that funded the capital gains were taxed at an appropriate rate to start with.
In the case of VC/PE etc. it can be argued that much of the capital gains are actually income and should have been taxed as such to start with - lets face it most partners in those businesses are risking other people's money rather than their own anyway.
Problem I have with tax is we tax people on their income rather than their wealth so people with low incomes regardless of their wealth pay lower taxes.
Re: Capital vs. labor: who risks more?
#6This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…
Your argument is circular. Essentially, you say that capital should be untaxed because it was already taxed as income. But that's a value judgement that assumes your conclusion.
There is a good case for taxing capital (savings). See Picketty.
Re: Capital vs. labor: who risks more?
#7One thing to keep in mind is that capital has already been taxed once when it was first generated. Sure, you can bring up tax loopholes and inequality but generally it's true that the remaining capital is after taxes. So an investor risks losing 100% of their after-tax money. Labor risks their pre-tax money only and it is very likely they ca "re-invest" by moving to another job. Once capital is gone it is gone forever.
Re: Capital vs. labor: who risks more?
#8This article is quite odd: income appears to be taxed "more progressively"...One justification for this is that investors risk losing much or all of their capital. Workers, on the other hand, are guaranteed their wages This is not the primary justification at all, and I'd be rather surprised to see many economists arguing it. The actual reason capital should be taxed less than income (specifically, at 0%) is because…
Why is interest on savings accounts taxed at income rates? Why is short-term capital gains taxed at income rates? While long-term capital gains are taxed at much lower rate. Seems like risk has something to do with it, no?
Re: Capital vs. labor: who risks more?
#9The article uses the argument that an investor risks losing the investment and still the investment is taxed. Maybe there are national differences but where I live only gains from capital that are realised (dividends paid or when an asset is sold) are taxed, not the investment itself.
Re: Capital vs. labor: who risks more?
#10investors risk losing much or all of their capital
This of course implicitly assumes that the economy is an unplanned one. Yet the investor class is who fights tooth and nail with political donations and so forth to keep the economy unplanned. They fight tooth and nail to keep an unplanned economy, and then say they are deserving because they have to suffer the vicissitudes of an unplanned economy.