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PaperclipPerfector  7mo ago (text post)   27625 thread views

Culture War Roundup for the week of April 15, 2024

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Someone who spends their money by buying stuff gets hit by sales taxes, while someone who "spends" their money to make more money gets hit with capgains taxes.

And then gets hits by sales taxes anyway when he spends his money in the future.

Taxes on investment income distort the trade-off between present and future consumption in a way that neither taxes on consumption nor taxes on wage income do.

There's a superficial appearance of symmetry here, where it seems like taxes on investment income discourage investment and taxes on consumption discourage consumption, but the illusion goes away if you work through the math. The tax system really is set up in a way that penalizes saving and investing.

All taxes are distortionary. A few like carbon taxes or cigarette taxes distort in good ways, while most distort in bad ways. Taxing labor income is almost exclusively bad, since it promotes sloth and working less, while taxing capital gains is a mix. There's the bad aspect of discouraging investment along with the positive aspect of reducing inequality. The author is saying the current privileged mix of taxing investments less than labor income isn't good enough, that we should institute massive taxes on labor to reduce all taxes from investments to 0.

Taxing capital gains is not a way of avoiding taxing labour. The capital gain is a return on an initial investment that was earned with labour. Taxing it is taxing labour, just in a way that creates a deadweight loss by taxing someone who saves more than someone who spends. You get all of the deadweight loss of taxing labour and then some.

In my third link, Scott Sumner directly addresses the point about inequality. Taxing capital gains doesn't reduce inequality. The two brothers in his example are equally wealthy. But one chooses to invest his wealth and the other chooses to spend it. The fact that the one who invests it earns a capital gain does not mean he is wealthier. His brother had the same opportunity and didn't take it because he valued earlier consumption over later consumption. Claiming there is a difference in equality is just like claiming there is a difference inequality between someone who bought watermelon and someone who bought blueberries.

The author is saying the current privileged mix of taxing investments less than labor income isn't good enough, that we should institute massive taxes on labor to reduce all taxes from investments to 0.

He's not saying that at all. You've completely misunderstood. You should read the articles more carefully because he directly addresses this kind of argument.

All taxes are distortionary.

Hate to be that guy, but land value taxation (or really taxes on anything that's inelastic in supply) doesn't have that problem. Probably the most compelling argument for it (plenty of arguments against it, as well).

And then gets hits by sales taxes anyway when he spends his money in the future.

I have occasionally mused that a truly-progressive sales tax could be interesting: tax total expenditures up to, say, the median cost of living at one rate, and marginal expenditures above at a higher rate. This would probably need some allowance for amortization on bigger purchases. The idea being to tax the wealth when it's spent, and intentionally incentivising capital investments rather than conspicuous expenditures.

But it's a very wonkish policy proposal that would be hard to sell to the broader public, I think. And probably has quite a few details that would need ironing out.

It seems like a progressive sales would inherently require tying your identity to every purchase, which seems like a huge inconvenience and a tough sell from a privacy perspective.

Flat sales tax with a rebate partially solves it, although in practice you would need a horrible VAT system to stop people living off their employer tax-free (like the tech companies already do to some extent)

Here is another proposal: https://www.themoneyillusion.com/tax-luxury-not-wealth-or-income/

Possibly. I think you might be able to track net cash outflows, rather than purchases directly, to cover most of it, but that admittedly only works for people that use banks and would have trouble with people who get paid and pay in primarily cash. But the existing income tax system has those problems too.

You could also tax different products at different rates, depending on the income range that purchases them. Used clothes, lower rate; Teslas, higher rate; organic produce, higher rate; frozen veggies, lower rate. In theory you could kind of approximate the same effect. The biggest issue would be all the jockeying different industries would go for to be classified into the lower rate (why, of course this Hermes bag is purchased mostly by lower income people!)

I guess a corresponding benefit could be dramatically reducing the overhead of a small business. But only in a fantasy world where all state taxes followed suit.

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