Why? There's no reason that a consumption tax can't be progressiveness-neutral.

That's a really key point that a lot of people seem to miss - getting rid of capital taxation doesn't have to mean making the rich pay a whole less tax. You can have it so some rich people pay a whole lot more (the more profligate ones) while others pay less (or even more, if you want to make the whole system more progressive than it is now). But the status quo is that rich guys who spend everything on hookers and blow pay less taxes than those who save for their future. I can't think of any reasonable principle of equity that condones that.

The idea in the article, and what I assume is being argued for here, is a progressive tax on consumption. So, poor people may pay something like 10% and the rich would pay more like 50%. It would certainly cut consumption at every level of income above subsistence one would assume. That may not be a bad thing long-term, but it would be a massive contraction when it was implemented.

I mean, I invest and ****. Passive income is awesome. I'm set to make a bit off this election. But I'm not going to sit here and pretend that I'm better than the mailman that slogged through the wind and snow, or the steelworker who works in 100+ heat for 12 hours a day. Why should I pay significantly less on my sweet sweet passive income? People have quite a bit of incentive to get passive income anyway, obviously. I think any real argument for zero capital gains amounts to Lirva's "taxes are theft."

That's because they make less money than the guy who saves for the future. I'm really not sure why you can't, or don't want to, wrap your head around that idea. You are just trumpeting the idea over and over again that wages from labor are the only kind of income. We aren't confused, we just don't agree.

Unfortunately hookers and blow are on a black market only basis and therefore no tax revenue is received from them in most parts of the U.S. This is a sad and unfortunate fact and needs to be remedied immediately.

In seriousness though, my primary concern is that the working poor are able to make enough so they can save a small amount at the end of the month, so they can one day be one of those people making that passive investment income. Progressive taxation doesn't have to be about emotion, it makes sense economically as well. I'm reading the plan now.

Still trying to figure out how a consumption tax can be progressive, as it seems incredibly regressive in nature, but we'll see.

My argument is NOT about capital being "good for the economy". A lot of people defending lower rates of capital gains do make this argument, but I'm not really sure that there really are significant positive externalities to more capital on the margin.

In fact, I'd like to move beyond the whole idea of "capital" to begin with, because it confuses the issue, and just focus on the end goal of capital - consumption.


So, rather than eliminate those forms of tax avoidance, let's throw the baby out with the bathwater.

Correct. I'll make sure to take a note of this every time I see you post about a comparatively trivial problem and reply with "WHAT ABOUT STARVING AFRICANS? HUH?"

But why would labor be taxed more highly than investing in the first place? The question should be "what is and isn't income?". Maybe consumption taxes are fairer, I haven't given it thought. But capital gains should be taxed the same as any other form of income imo.

Yeah, that post wasn't really directed at you - sorry about that. I probably wouldn't argue with you if your point was to get rid of income tax entirely and only tax consumption. That (I think) is a fair system.

But I do think taxing capital gains income at a different rate than other forms of income is unfair for the reasons I outlined in that post.

By the way, there was an article on CNN about this issue last week that argued for taxing spending. I thought it was interesting.

Why do the Romneys pay so little in taxes?
http://www.cnn.com/2012/09/24/opinio...tax/index.html

Guarantee me a return on investment and I'll agree with you.

You're not guaranteed a return on your investment and I'm not guaranteed to not get laid off next week.

Better make good investments.

Have you read the second link? "Income" is a misleading concept because it treats time preferences as real gains.

In fact, I think I won't reply to anyone who says something like "income is income LDO" without evidence they've read Scott Sumner's post from the OP. It contains most of the points I'm likely to make, so it'd speed up the process a whole lot if we could get to the point where we can find out what your disagreements with Sumner are.

Good post. Labor is pretty important to the economy as well.

Bad post. Nickle-M likes to explore the theoretical justification for the way things are. And point out people's logical inconsistancies when we try to defend the status quo. It's interesting.

You don't lose money by getting laid off. Heck in most western countries you'll get money from the government for your trouble.

Taking a risk where you might lose money is in no way equivalent to doing labor for a set return.

So you're not really wanting to talk about capital gains, but advocating that we switch from taxing income to taxing consumption?

Right, you could lose all of your capital. But you're also trying to build something with a job, trying to build a career, taking a longterm risk that may or may not ever pay off. There is a big opportunity cost to that that this guy is not taking into account.

Basically, though a tax on labour is economically equivalent to a consumption tax. Firstly, though, I need to show that there shouldn't be taxes on capital income.

I don't know anyone that advocates taxing your efforts to build a career, only the short term income that is ancillary to that.

So what?

Nich, I'll read your link.

Right...you might not have to pay any taxes at all on the risky investment.

I said the second link, but it's actually this one.

So capital gains are not the same as income. You are trying to pretend they are.

You have completely failed to make a good argument that capital income should be taxed at 0 while labor is taxed at the normal rate. In the 2nd link you provided, the example he gave has 2 people with equal income. That assumption (common problem in economics) makes the whole argument invalid. Of course all sorts of things would be fair if everyone started with equal income. They do not.

As for the progressive consumption tax, I already posted this, but I don't necessarily think it is a bad idea. It is pretty much a moot point though since it would wreck the economy in the short and medium term. I think the US could use a nice dose of more saving and less consumption but something tells me there won't be many people lining up to hand in their iPads, 55" TVs and new cars.

Well sure they do. If those efforts work out, they equate to future income based on present effort. Time value of money just like an investment. And when they are eventually realized, I'll be taxed on that income as if it were labor income, not investment income. That strikes me as a tad queer.

Ugh, the argument that capital gains should be taxed at a different rate because it's "risky" is really terrible IMO.

Should every person paid on commission be taxed differently as well?
Should poker players have their income taxed differently?
Should people who work in high-risk construction jobs be taxed differently?
Should small business entrepreneurs be taxed differently?

It's still income. And it's still impossible to figure out how "risky" different forms of income are. It's cherry picking again.

I already made this point in the election thread, but you already get a benefit from taking a risk with an investment. Higher risk = higher average rate of return. Why get an additional tax benefit beyond that? Income is income and the way you manage to get it shouldn't matter.

Besides the ****ing primary benefit of not having to do actual work to make the income, obviously.

The whole reason to invest in the first place.