Earlier quoted context omitted.
There's no logical reason not to tax investors. They aren't unique butterflies that make the economy flourish. Investment is just one component of a functioning economy. So is education, saving, consumption, etc. Too much focus on one is not a good thing. This is one of the reasons we have so many investor bubbles. Also, the wealthy have no other options than to invest their money. What else would they do with it, pu…
On the contrary, there is no logical reason to tax investors/savers. I strongly recommend this article by Scott Sumner, who works through the details carefully. http://www.themoneyillusion.com/?p=28842 The key point is that taxes on investments create distortions while taxes on consumption don't. It's even worse if you tax different investments differently (e.g., interest vs cap gains, short term vs long term cap gai…
> Suppose we want to raise revenue with a present value of $20,000...We could have a wage tax of 20%, and raise $20,000 right now.
OK, sure.
> In contrast, an income tax doubles taxes the money saved, once as wages, and again as capital income . So now it’s $40,000 consumption this year, and only $72,000 in 20 years ($80,000 minus 20% tax on the $40,000 in investment income), an effective tax rate of 28% on future consumption
So the line of reasoning is:
1. The government wishes to raise $20k NPV in taxes
2. A 20% wage tax or VAT will accomplish this exactly, but a 20% income tax will raise $24k NPV, which means it is an effectively higher tax
3. Therefore income taxes are worse than wage taxes or VAT.
But that doesn't follow at all. The correct conclusion is that an income tax raises the same revenue with a lower nominal rate. That doesn't by itself make an income tax better or worse.