Econ question
As part of my Economics fixation, I've been considering off-and-on whether I'm really an economic conservative, and what that might mean. No real resolution. But, towards that end, Sandra and I had a conversation yesterday about Capital Gains.
There's a common conservative argument that Capital Gains taxes should be cut, inflation-adjusted, or non-existent. The argument seems to go something like:
Investment provides Capital for entrepreneurs, entrepreneurs use that capital to spur growth. Taxing capital gains cuts discourages investment, thus stifling growth. Therefore, capital gains shouldn't be taxed, as it retards growth. There are similar feelings that we should move away from an income tax towards a consumption tax. The arguments usually have something along the lines of "tax people who are taking from the system (consumers,) not people who are putting in (investors.)
I fundamentally don't understand this position. It seems like consumption is just as important to growth and the success of entrepreneurs as investment. Policies that skew one way or the other seem like misguided manipulation of the free market, which should in principle, settle on the right mix of investment vs consumption.
There are a lot of arguments to be made that investment as it currently exists does very little to spur innovation and growth and mostly goes to propping up stock, housing, and other asset prices. But even taking that as a given, I don't see where the idea that investment is more worthy than consumption comes from. Certainly now, when businesses are starved for demand, consumption is to be encouraged at the cost of investment?
The only possible arguments I see are:
1. I'm misunderstanding something.
2. There's some double-taxation of investment going on.
3. It's a purely foundational/basic position, the sort of thing that defines you as a conservative.
4. It's a baseless argument only to improve the economic position of you/your class/your benefactor/your employer.
My feeling is that Capital Gains should be taxed as regular income. I find it asinine at a basic level that a hedge fund manager making a billion a year is paying a lower percentage of his income in taxes (by half) than I am. It certainly seems like they should be taxed equally, and the market allowed to find the right balance. Skewing things with the tax code rarely helps, IMHO (see:Health Insurance, Housing.)
There's a common conservative argument that Capital Gains taxes should be cut, inflation-adjusted, or non-existent. The argument seems to go something like:
Investment provides Capital for entrepreneurs, entrepreneurs use that capital to spur growth. Taxing capital gains cuts discourages investment, thus stifling growth. Therefore, capital gains shouldn't be taxed, as it retards growth. There are similar feelings that we should move away from an income tax towards a consumption tax. The arguments usually have something along the lines of "tax people who are taking from the system (consumers,) not people who are putting in (investors.)
I fundamentally don't understand this position. It seems like consumption is just as important to growth and the success of entrepreneurs as investment. Policies that skew one way or the other seem like misguided manipulation of the free market, which should in principle, settle on the right mix of investment vs consumption.
There are a lot of arguments to be made that investment as it currently exists does very little to spur innovation and growth and mostly goes to propping up stock, housing, and other asset prices. But even taking that as a given, I don't see where the idea that investment is more worthy than consumption comes from. Certainly now, when businesses are starved for demand, consumption is to be encouraged at the cost of investment?
The only possible arguments I see are:
1. I'm misunderstanding something.
2. There's some double-taxation of investment going on.
3. It's a purely foundational/basic position, the sort of thing that defines you as a conservative.
4. It's a baseless argument only to improve the economic position of you/your class/your benefactor/your employer.
My feeling is that Capital Gains should be taxed as regular income. I find it asinine at a basic level that a hedge fund manager making a billion a year is paying a lower percentage of his income in taxes (by half) than I am. It certainly seems like they should be taxed equally, and the market allowed to find the right balance. Skewing things with the tax code rarely helps, IMHO (see:Health Insurance, Housing.)