Comments on: Taxing Capital Gains at Ordinary Rates: Evidence Says Do It…So Does Buffet

By: Marion Delgado

Marion Delgado — Tue, 17 Jul 2012 22:15:17 +0000

This is a very good summary and it explained a point I was trying to make on a chat quite well. The issue is BEHAVIOR. In essence, if you tax ordinary income at a high rate and capital gains at a low rate, it’s a “sin tax” on ordinary income (wages, dividends that are ordinary income, etc.). People with capital and a desire for high incomes will behave accordingly.

By: ronbo

ronbo — Sat, 23 Jun 2012 00:20:25 +0000

Remember word problems in math? I blame the American education system for failing to teach you basic reasons why we use log scales and not linear scales. This is an excellent example of when we should use log scales (of any base). Your plot simply tells us that tax rates are lower now then they use to be while inflation has continued on.

By: ronbo hagen

ronbo hagen — Sat, 23 Jun 2012 00:10:58 +0000

I would agree that corporate taxes need adjusting. But to keep taxes progressive and not regressive (a flat tax by the way is regressive on the whole of society), income taxes should be very progressive on any type of income. Capital gains is a cool way to shift income onto the value of a stock for the purpose of avoiding taxes. Corporations then split their shares to hide this income shift. So owners should then be taxed equally for capital gains as they are for dividends.

Now, to fix the corporate taxes, taxes should not be a flat rate like they are. They should be adjusted for the cost of the corporation to society (build roads for commuters, police for protection, support of internet infrastructural, etc). We also need corporate taxes to compensate for consumption of natural or national resources.

By: David A. Spitzley

David A. Spitzley — Tue, 17 Apr 2012 19:34:50 +0000

Coming to this thread very, very late, there’s also the fact that due to quirks of calculus, small changes in the natural log of X are equivalent to percent changes of the same numerical value. For example, if ln(X) rises by .01, X rises by almost precisely 1%. That works until changes of around 20%. I believe only natural logs work that way.

Math detour: if we take the first derivative of the natural logarithm of x, it turns out that d[ln(x)]/dx = 1/x . Rearranging the terms, this means that d[ln(x)] = dx/x. In practice you can treat the differential terms (e.g. dx) as deltas – changes in values – we wind up with dx/x = percentage change in x (e.g. a change of x=$1000 when x=$100,000 is a 1% change), and thus the change in the log of x equals the percent change of x.

By: Colin Cooper

Colin Cooper — Thu, 01 Dec 2011 22:29:29 +0000

Here are the problems that Buffet did not talk about. What about capital losses? Do they become immediately deductible? He also did not mention the fact that no one forces you to sell an asset and recognize a capital gain. That is quite different than having a salary. The 2012 election is coming up and Buffet is backing Obama. I would not take anything he says more seriously than any other political pundit.

By: Jim Timmy

Jim Timmy — Sun, 28 Aug 2011 15:51:07 +0000

That’s a lot harder to do in practice. If unrealized Capital Gains were to be taxed, then less people would invest in Capital Gains at all.

Of course, the whole idea of investment taxation is to tax “gains”. If they are unrealized, then they are not “gains”. Basically, this would distort behavior greatly.

By: max

max — Sun, 28 Aug 2011 09:57:56 +0000

The Tax code reveals America’s true values. High taxes if you work for a living. Low taxes if you manipulate money.

simple.

By: beowulf

beowulf — Sat, 27 Aug 2011 21:41:07 +0000

“There is strong evidence that Capital Gain Realization is highly responsive to taxation.”

An excellent argument for taxing unrealized capital gains annually. better yet, levy a net asset tax, the constitutional restrictions on direct taxation may or may not apply to real estate holdings (there are legal scholars on both sides) , but its irrelevant point. Personal property (including financial assets) clearly are not direct taxes. But it doesn’t really matter, for political reasons, any net asset taxes collected on real property would be rebated to the States anyway (the National Governors Association would issue a Fatwa declaring Jihad against Uncle Sam if it stepped on their property tax collections). So trade them a cut of net asset taxes at the same time Medicaid is federalized (or better yet combined with Medicare) on condition deposit current Medicaid state funding ($175 billion or so) is transferred to Medicare Part A trust fund.

Right wing (unbelievably right wing) commentator James Bowery had an interesting idea. Tie Net Asset tax rate to 3 month Treasuries. That would put the CBO on the horns of dilemma, how do they score something that would either zero out net interest cost or raise hundreds of billion in tax revenue or both )
http://mysite.verizon.net/res10kjcq/ota/others-papers/NetAssetTax_Bowery.txt

By: Jim Timmy

Jim Timmy — Sat, 27 Aug 2011 13:56:45 +0000

If you were to plot the top tax rate vs Revenue as a percentage of GDP, you would be able to “shoot a pretty good hole” in the idea that higher taxes lead to more revenue.

By: Jim Timmy

Jim Timmy — Sat, 27 Aug 2011 13:55:23 +0000

“I’ve simply never seen compelling evidence that tax increases significantly hurt growth, labor supply, jobs, wages, or that rate decreases provide much of a boost the other way.”

I suppose you weren’t convinced by Nobel Prize Winner Ed Prescott or Raj Chetty on the Labor Supply Question.

As far as growth goes, I would also have to assume that you are not affected by the numerous cross country regressions showing a negative relationship between Taxes and Growth.

Looking at the Capital Gains Tax, there is strong evidence that Capital Gain Realization is highly responsive to taxation. That would explain why the 1997 and 2003 Capital Gains Tax Cuts both led to more revenue than the CBO projected without the tax cuts.