Capital vs. labor: who risks more? • Hacker News Board

Re: Capital vs. labor: who risks more?

#11

Post by api » Sat, Oct 25, 2014, 5:03 PM UTC

yummyfajitas wrote: post #2

This 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…

I thought capital gains taxes only applied to gains. You're not taxing savings, and losses can be written off against gains.

The inflation problem could be mitigated with a structure that takes this into account.

I can think of other reasons that low capital gains taxes are good, like encouraging investment, but the "taxing savings" argument doesn't seem like it works.

IMHO what we really need is a way to distinguish rentier income from investment income derived from investing in growth. The former should be taxed as income or maybe even higher, while the latter should be taxed at a lower rate or not at all.

Re: Capital vs. labor: who risks more?

#12

Post by z3t4 » Sat, Oct 25, 2014, 5:04 PM UTC

One side of taxing work is that it creates an incentive for automation.

Re: Capital vs. labor: who risks more?

#13

Post by yummyfajitas » Sat, Oct 25, 2014, 5:07 PM UTC

unchocked wrote: post #6

yummyfajitas wrote: post #2

This 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.

The actual detailed argument is that only two things can be taxed - consumption and investment. Consumption is the right thing to tax, since it measures the benefits a person receives from society. My argument isn't circular, however - it merely shows that once you have an income tax you don't need a savings tax.

Piketty's argument, near as I can tell, is merely that we might live in a world where the best way to create wealth is to allow super smart uber rich people to direct nearly all investment [1]. Further, if we allow wealthy people to do this, they won't actually consume the fruits of their labor - they'll allow the rest of us to. Why that's an argument for taxing capital I have no idea.

[1] His book doesn't justify this at all, it merely assumes it. http://www.chrisstucchio.com/blog/2014/piketty_and_inequalit... But he has a couple of academic papers with models that I haven't fully read yet.

Re: Capital vs. labor: who risks more?

#14

Post by legacyfruit » Sat, Oct 25, 2014, 5:09 PM UTC

yummyfajitas wrote: post #2

This 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…

Agreed. The primary reason economists argue for taxing capital gains, is that income can be disguised as capital gains. Startups are probably the best example of this.

Even this reason, however, is probably exaggerated. Suppose for example that the CEO owns 10% of a company's stock. While they have a greater incentive to work hard, there is also no reason to think the stock price will rise faster than any other stock (by the efficient market hypothesis). This apparent contradiction is resolved by that fact that the market already knows that the CEO is incentivized to work hard. So as long as the CEO isn't awarded shares before it is announced publicly, the capital income from these shares should be no different to any other share.

The same applies to startups, however in the case of the startup there is no market signal so it is easier to cheat accounting rules and claim that the value of the awarded shares are lower than they really are.

Re: Capital vs. labor: who risks more?

#15

Post by gamblor956 » Sat, Oct 25, 2014, 5:09 PM UTC

yummyfajitas wrote: post #2

This 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…

Capital gains taxes are not savings taxes. They are taxes on income arising from the disposition of capital assets. They are subjected to lower rates than normal income to incentivize capital investment income streams over normal income streams.

Only a few countries impose savings taxes (also known as "wealth taxes"): France, Spain, the Netherlands, Norway, and Switzerland. There might be two or three more that I'm missing. Wealth taxes are intended to prevent the concentration of wealth by essentially forcing a minimum level of capital investment by the extremely wealthy.

In your example, the person who earns and saves $100 is not taxed any differently than the person who earns $100. The saver has not invested any capital (yet), he is simply sitting on the money. Both were taxed at the appropriate tax rates (0% or their applicable marginal rate), so both have the same amount of money. If the saver then invests the money in a capital producing asset, when he later disposes of the asset, he may be taxed on the gain, if any, he recognizes on the income (i.e., the increase in the price of the capital asset over the price he paid for it). If the saver sold the capital asset for the same price, or for less, he is not taxed on the sale--in those situations, he is not treated any differently than the spender. It is only if the saver realizes a capital gain that he is subject to a capital gains tax, and when he is, he pays a far lower rate on that income than he would if he had earned the income (max 20% rate vs 25% rate or higher assuming saver is above the poverty line).

Re: Capital vs. labor: who risks more?

#16

Post by runeks » Sat, Oct 25, 2014, 5:12 PM UTC

jdreaver wrote: post #4

yummyfajitas wrote: post #2

This 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…

As I see it, the real problem is differentiating "income" and "capital gains".

We all have a general sense of what each category refers to, but there are a lot of edge cases where it's difficult to say whether it's one or the other.

If I'm a day-trader, buying and selling stocks, and making a living on this, is the profit income or capital gains? If we go by the logic that one shouldn't pay the same tax twice, then it's capital gains, because income tax has already been paid on the money used to invest.

I'm not saying this is the wrong conclusion -- that the income of day-traders selling and buying stocks should be taxed as capital gains -- but it seems to me that this constitutes favoring one profession over another.

Surely, if I earn my living buying apples cheaply and selling them for more money, my income would be taxed as income, and not capital gains. So why should income from selling and buying apples be taxed differently than income from selling and buying stocks?

Again, I don't claim to have the answer. It just seems like a hard problem to me.

Re: Capital vs. labor: who risks more?

#17

Post by vdaniuk » Sat, Oct 25, 2014, 5:16 PM UTC

pastProlog wrote: post #10

investors 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.

There is no such thing as "investor class". Also there is no collective "they" who comment on the economy, planned or not. It is not possible to generalize all or majority of investors into one box.

Re: Capital vs. labor: who risks more?

#18

Post by jellicle » Sat, Oct 25, 2014, 5:19 PM UTC

unchocked wrote: post #6

yummyfajitas wrote: post #2

This 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.

Correct. Fajitas is making the value judgement that ever-increasing inequality, followed by revolution and war, is better than a stable, long-term society with less inequality. Most people disagree.

Re: Capital vs. labor: who risks more?

#19

Post by polynomial » Sat, Oct 25, 2014, 5:24 PM UTC

Why is it "vs."?

Is it necessary for Capital and Labor to be so opposed? It doesn't seem like the optimal arrangement. Wouldn't increased cooperation between these 2 sides reduce risk for both?

Re: Capital vs. labor: who risks more?

#20

Post by autokad » Sat, Oct 25, 2014, 5:26 PM UTC

first and most importantly, taxes has little to do with risk unless for some reason the government wants to encourage or discourage risk.

i wont go into capital gains being double taxed, thats covered bellow. what i will go into is how completely wrong the writer is on risk of labor vs capital.

its VERY easy to loose money in the market. unless you want to pay the same taxes on capital gains as your tax bracket (labor presumably), you have to dump money into a company and hope a year from then that after fees, taxes, and inflation that you broke even. even at the worst of our resession, the unemployment rate was around 8.1%, lets call it 10%. that means 90% of people were still working - in pretty much the 2nd worst time in US history for them. meanwhile investors lost about 50% of their capital.