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

Re: Capital vs. labor: who risks more?

#51

Post by Brian-Puccio » Sat, Oct 25, 2014, 7:40 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…

I don't understand.

If you make $500, then pay $100 in income tax, you're left with $400.

If you invest the $400 in a stock and sell later for $500, you're not taxed on the $400 you've already made (and were taxed on), you're taxed on the $100 capital gain, which you haven't paid taxes on.

Or am I misunderstanding things?

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Further ... Is your argument is that once a pool of money has been taxed, that pool of money should never be taxed again? If so, does that mean you don't believe anyone should pay sales tax on anything they've purchased (since they're purchasing it with post-income tax dollars)?

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Lastly, you mention that if "someone has a large pool of wealth, then they have already been taxed when they earned it". This is not necessarily so thanks to dynastic wealth, an issue others have brought up in other comments.

The issue is exacerbated when someone inherits wealth (and pays little to no taxes on it), then invests it and has a capital gain of say $40k -- enough to cover basic living expenses in many parts of the country for a year. That person's tax rate is lower than a person who worked for an employer and made $40k. The question is, why is the government incentivizing this through tax code?

Re: Capital vs. labor: who risks more?

#52

Post by ScottBurson » Sat, Oct 25, 2014, 7:49 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…

This point could also be addressed by subtracting the increase due to inflation -- or even the risk-free rate of return, which one hopes is slightly higher than inflation -- from the amount to be taxed on, before multiplying by the tax rate.

In a low-inflation environment this wouldn't make much difference, but in a high-inflation environment (like the 1970s) it would make quite a large difference.

Re: Capital vs. labor: who risks more?

#53

Post by ScottBurson » Sat, Oct 25, 2014, 7:53 PM UTC

gamblor956 wrote: post #27

yummyfajitas wrote: post #13

Earlier quoted context omitted.

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 cre…

No, the correct argument is that many things can be taxed: creation, value enhancement, consumption, disposition, investment, wealth, transfers, transfers across borders, etc. (You're also still confusing savings taxes with investment taxes, which are not even remotely the same thing.)Which of these is taxed is a function of political ideology. If you tax consumption, you might also tax wealth, if a large portion of…

> He's not arguing for capital gains taxes--indeed, he opposes them, and has argued that capital gains should be taxed no differently from ordinary income.

Please clarify. Up to the comma I thought you were saying that he thinks the capital gains tax rate should be zero, but the rest of the sentence says something quite different.

Re: Capital vs. labor: who risks more?

#54

Post by robomartin » Sat, Oct 25, 2014, 8:59 PM UTC

Hmmm. I have over half a million dollars in electronic components and custom assemblies sitting in storage pretty much rotting away. A market shift made the project and the product almost impossible to sell.

All employees were paid on exit, including generous severance pay, etc. All of them found employment relatively quickly. A number of them were able to parlay the experience gained during the couple of years they worked for me to gain higher level jobs. One particular individual came in with very little experience in the field. I spent over a year tutoring him. He was able to get a VP position at a competing company within a week after we closed the shop.

My? I nearly lost everything. Probably took a million dollar hit (don't know exactly how much yet) and have components and supplies in storage that I paid half a million dollars for that you might be able to sell for less than five cents on the dollar.

Be careful making assumptions about who risks more based on silly examples like some guy flipping burgers at a fast food joint. Things often aren't that simple. I know one entrepreneur who died due to the stress of his business tanking during the economic collapse of 2008. His employees moved on just fine.

Yes, these are extremes. And, yes, these cases might not compare well when we are talking about billionaires. Don't know. From my perspective few people are willing to do the kinds of things I do: Put it all on the line. All. Take a huge risk. And if it pays off you reap the rewards and live to have someone call you a greedy bastard. If you fail miserably nobody gives a crap. They might even call you an idiot and malign you for firing a bunch of people without much notice.

Walk in someone else's shoes before being opinionated. Reading about something on the net is very different from living it. Don't think so? Go SCUBA diving with sharks. I've done it. Pissed myself. Multiple times. Easy to read and sound really smart about on the 'net. Not so when you are 100 feet under water with five of them surrounding you.

Re: Capital vs. labor: who risks more?

#55

Post by badsock » Sat, Oct 25, 2014, 11:43 PM UTC

adventured wrote: post #46

badsock wrote: post #42

Earlier quoted context omitted.

You seem to be unnecessarily conflating taxation with corruption. There are plenty of places that collect high taxes that don't have that sort of routine unethical behaviour.

Which countries collect high taxes that don't have economic stagnation as a result of it? I can think of only a few out of ~195 countries in the last decade that have seen good economic growth with high taxation. Most of which have some other prop, such as oil in Norway.

I was talking about corruption, not economic growth. I'll bite, though.

The corrolation between high tax rates and economic growth is an incredibly partisan issue. There are lots of people saying that they are connected, but there are just as many saying that stagnation is much better corrolated to inequality (e.g.):

http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

I will say that if you look at the "quality of life for the average person" indicators (health and longevity, infant mortality, leisure time), the high-tax countries smoke the rest. So my argument is: even if your country's GDP is growing a little faster, why would you care if it doesn't make your life any better?

Re: Capital vs. labor: who risks more?

#56

Post by merrillii » Sun, Oct 26, 2014, 3:04 AM UTC

jjoonathan wrote: post #40

merrillii wrote: post #7

One 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 foreve…

Oh really? My understanding was that due to loopholes corporate taxes are practically nothing compared to the numbers that people keep plugging into their "look, capital actually has a higher tax rate than labor!" calculations.

They are not practically nothing. After loopholes the average corporate tax rate is something like 17% [1]. This is far lower than the often stated 35% but it is not nothing.

This whole blog post seems to neglect the point that Labor generates Capital. Whether that money is invested or spent it has already been taxed once. Now if the capital generates more money as an investment it will get taxed again on the profits. Likewise if Labor continues to work the income will get taxed as well. The Capital investment has the risk of going to absolute zero. The potential Labor investment cannot go to zero unless the person dies.

[1] http://economix.blogs.nytimes.com/2013/11/26/effective-corpo...

Re: Capital vs. labor: who risks more?

#57

Post by aragot » Sun, Oct 26, 2014, 8:49 AM UTC

guelo wrote: post #48

dkfmn wrote: post #33

This isn't really an ideal article to kick off a series of debates that could be very interesting. It's trying to relate too many concepts from taxation theory to economic stimulation to labor management, etc, etc. If the main point is to ask if capital or labor risks more the answer is trivial: capital. There is a -100% downside for investment and minimum positive earnings for labor. On the other hand capital has an…

You ignore the article's point about the risk of choosing a proffession. For example, what's the return on investment for the worker that trained to be a professional car welder in Detroit? I don't know if "-100%" captures the loss.

There are many more choices for the capital worker. They have to judge every transaction they make. For example they ought to check whether the companies they invest in are diligent about back-ups, because that's a cause for losing the whole investment. They have to choose whether they'd rather invest in start-ups or grown companies, and if in startups, they have to gather enough info that the startup has good chances of succeeding.

In your example, it sounds like we take the job and location as a constant. If they guy can't choose a profession that has good chances of surviving throughout the years, he'd be really bad as an investor.

Re: Capital vs. labor: who risks more?

#58

Post by aragot » Sun, Oct 26, 2014, 9:05 AM UTC

FLUX-YOU wrote: post #36

Practical side point: If I have a lot of capital, I may be able to convert to cash and just go retire to a beach somewhere. If I lose everything and can't convert (even to scrap metal), then I'm about as well off as low skill labor when low skill labor loses work / can't find more (surely I've made a wealthy friend or two while having lots of capital that can help out though). High skill labor might have some savings…

I always wonder why we tax things that we otherwise want to encourage. It's a human bias, we tax what everyone does because we think it's "fair", in the sense that everyone supports it. If you've studied micro-economy, you know that a tax discourages demand and diminishes the offer.

What if we taxed what we wanted to discourage? We already have high taxes on alcohol, which is good because there are many side-effects that society has to support: Car accidents, busy hospitals on Saturday evening, violence at home, and just the loss of people who would be valuable to society. In that sense, high taxes on alcohol are a mere compensation for the cost of alcohol to society.

Let's have no tax on labour and high tax on pollution. You may say it would be unfair because the poor would pay higher total taxes. I don't think that's proven. If you could however demonstrate that poor people pollute more (eg. "Poor people commute a lot, using cheap cars, therefore consume more petrol"), we should re-adjust our minimum wage, our whole society, maybe our whole real estate assignment, because we'd be doing it real wrong.

Actually, that's the point: With tax on labour, we create a lot of incentives that are contrary to organizing a world which pollute less.

So the whole debate about "which one of tax on capital gains or tax on labour should be higher" is flawed. None of those should be high. Tax on pollution (and more generally things which create a cost for society) should be higher.

It's called "externalities".

Re: Capital vs. labor: who risks more?

#59

Post by dkfmn » Sun, Oct 26, 2014, 5:50 PM UTC

jjoonathan wrote: post #41

dkfmn wrote: post #33

This isn't really an ideal article to kick off a series of debates that could be very interesting. It's trying to relate too many concepts from taxation theory to economic stimulation to labor management, etc, etc. If the main point is to ask if capital or labor risks more the answer is trivial: capital. There is a -100% downside for investment and minimum positive earnings for labor. On the other hand capital has an…

Joe Schmo losing his $20k/yr burger flipping job for a year will suffer far more than Bill Gates losing $20B in a market fluctuation, despite the fact that the latter is literally 1,000,000 times worse on paper. Monetary risk and utility risk are not the same thing and choosing one over the other is equivalent to picking a side in the debate. As for optimizing opportunity between labor and capital, I tend to suspect…

Of course there's a difference between monetary risk and utility risk. They shouldn't be conflated in this discussion for a number of reasons. One such is that measuring utility is very difficult without resorting to a yardstick like capital.

You also bring up personal utility which is important. How do you balance the risk of a destroyed livelihood against a much greater capital loss? We also have to be careful not to presume that Joe Schmo can't find another job (better or equivalent).

Re: Capital vs. labor: who risks more?

#60

Post by dkfmn » Mon, Oct 27, 2014, 4:10 PM UTC

guelo wrote: post #48

dkfmn wrote: post #33

This isn't really an ideal article to kick off a series of debates that could be very interesting. It's trying to relate too many concepts from taxation theory to economic stimulation to labor management, etc, etc. If the main point is to ask if capital or labor risks more the answer is trivial: capital. There is a -100% downside for investment and minimum positive earnings for labor. On the other hand capital has an…

You ignore the article's point about the risk of choosing a proffession. For example, what's the return on investment for the worker that trained to be a professional car welder in Detroit? I don't know if "-100%" captures the loss.

This is an apples to oranges comparison. You're bringing up losing a job and comparing it to losing an investment. In this case the investment is gone, and the FUTURE earnings of the worker from that specific job are gone. The worker already received compensation for past work.

However, there is a point to be made about how the loss of livelihood, or a reduced standard of living can be devastating. It's just not the same economically.