Economics

Republicans and Tax Realities

Why the GOP was wrong to cut the capital gains tax

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In the 1980s, a Republican House member, fed up with bipartisan efforts to reduce the budget deficit, denounced Republican Sen. Bob Dole as the "tax collector for the welfare state." Newt Gingrich, who later became Speaker, had captured something essential about the party's mood. It was not against the welfare state. It was just against paying for it.

That remains the case today, as John McCain and his supporters make clear. He rules out tax increases to cut the deficit, while vowing to get tough on spending. But the Committee for a Responsible Federal Budget says that while his proposals would slow the growth of spending, total outlays would still rise faster than inflation. Result: a larger deficit.

Republicans used to argue that keeping taxes down was the only way to restrain spending. But as taxes have been cut under President Bush, spending has soared by 29 percent (after adjustment for inflation). Meanwhile, a $236 billion budget surplus has morphed into a deficit of more than $400 billion.

If we want to cut federal spending, apparently we have to do it directly. And if we don't want to cut spending, the least we can do is pay for it ourselves instead of running up debts for our children to pay.

But Republicans object to raising taxes in general, and one in particular: the tax on capital gains. Obama's plan to increase the rate applied to the sale of assets has provoked howls of outrage on the right.

McCain said it proves Obama "doesn't understand the economy." An editorial in The Wall Street Journal claimed that lower rates yield higher revenues and drew a damning conclusion: "Either the young Illinois senator is ignorant of this revenue data, or he doesn't really care because he's a true income redistributionist who prefers high tax rates as a matter of ideological dogma regardless of the revenue consequences."

You don't have to be a Democrat to doubt that logic. Conservatives regard Obama as a true-blue liberal who itches to expand the size of the federal government. Do they think he would forfeit money to do that just for spite?

As it happens, Obama is the one who is heeding data rather than ideology. Most economists believe that in the long run, the 2003 cut in the capital gains rate reduced revenue rather than raising it. For that matter, even the Bush administration's budget admits as much. Keeping the rate at 15 percent rather than letting it revert to 20 percent, it estimates, would cause a revenue loss of $79 billion over the next decade.

It's true that rates and revenues may sometimes move in opposite directions. When the rate rose in 1987, capital gains realizations dropped. But there's an obvious explanation for that transitory effect. In 1986, seeing the increase coming, people hurried to cash in capital gains while the rate was low.

It's also true that after the rate fell in 1997, realizations rose. But as University of Michigan economist Joel Slemrod notes, that increase began well before the cut—and they plunged after 2000, without any rate increase. Assessing the last two decades, the Congressional Budget Office reports that any positive effect on realizations is "certainly not large enough to offset the losses from a lower rate."

Sensible people might not mind the lost revenue if the change strengthened the economy. But chances are it does just the opposite, by encouraging taxpayers to jump through hoops to reduce their tax liability.

A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

Like all taxes, capital gains taxes are a burden. But given that the federal government spends nearly $3 trillion a year, taxes are a regrettable necessity. When we cut capital gains taxes, we have to raise other taxes to make up the loss. Or we have to borrow more money—which means raising taxes in the future.

Republicans may abhor the obligation of paying for the welfare state they helped preserve. But for the moment, the only real choice is between doing that job better and doing it worse.

COPYRIGHT 2008 CREATORS SYNDICATE, INC.

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  1. Raising them to the Reagan rates wouldn’t be terrible. Wouldn’t be *great*, but wouldn’t be terrible. The marginal corporate rate, on the other hand, is too high. *Higher than France* too high.

    Of course, if you took the US off of a permanent war footing and slashed the military budget so that it was merely half the combined total of all other countries in the fucking world, you might be able to pay for current tax rates.

    Maybe.

  2. Well, there is the notion that this money has already been taxed. Expensees, labor & corporate income all trigger taxes at marginal rates of around 40%. So, by the time the money makes it to the shareholder, it’s being taxed at over 50%. Either capital gains or corporate taxes need to be cut. To continue to tax it at these levels is begging corporations to move to friendlier places.

  3. Tweak one tax, cut another, tweak spending here, cut it there. The system is so messed up, it’s friggin’ hopeless anyhow.

    BTW, it would have been much more fun to have Chapman come out with a more ballsy Capital Gains proposal, whereby the tax would be re-instated on primary house sales. At least that would be more entertaining to argue about.

    Well, there is the notion that this money has already been taxed.

    Ummm….no. Double taxation occurs with Dividends, not Capital Gains.

  4. Is Reason becoming a laughingstock or what? Free markets require free (liquid) capital as a cornerstone.

  5. Wrong on cutting capital gains? Yeah… no.

  6. kebko, expanding on what MP said, capital gains are taxes based on differences in stock prices. As such, corporate taxes will reduce profits which will reduce earnings per share which will reduce stock prices, but as you can see, that’s rather indirect and doesn’t really count as “double taxation.”

    That said, corporate taxes needed to be removed entirely: they simply get passed on to the consumer, and as such, are both hidden and regressive.

  7. But given that the federal government spends nearly $3 trillion a year, taxes are a regrettable necessity.

    Uh, Chapman, maybe calling for…reducing how much the government spends might be a good idea?

  8. Uh no. What you want to do is lower the other taxes to the same level. This puts more money in the hands of the people and less in Washington thus reducing both general malinvestment and the specific malinvestment addressed in the article.

    And I agree that corporate taxes need to be fully eliminated.

  9. Was the title the punch line or what?

  10. A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

    True to a point, certainly. On the other hand, capital gains taxes hinder the free market by inducing people (especially wealthy ones) to keep capital invested in inefficient places instead of shifting capital to more efficient target.

    Capital gains taxes also have pretty poor tax incidence and avoidance costs, and lots of deadweight loss; it’s very easy to shift capital from one location to another, but much harder for a worker to shift locations. (A consumer shifting consumption depends on the breadth of the tax.) Hence, like corporate taxes, the costs are often passed on to labor or the consumer.

    Taxes should be broad-based, transparent, and minimize deadweight loss.

  11. Mr. Chapman, have you been hanging out with Ezra Klein and drinking or eating anything that he had?

    After reading that article I feel that I need a peroxide shower.

  12. I don’t buy the line that because Replublicans couldn’t reign in spending taxes should be higher… Fuck the children, lower my taxes, reduce government.

    Also, I take issue with the line:

    “by encouraging taxpayers to jump through hoops to reduce their tax liability.”

    The Mortgage deduction and primary residence exemption are really distortionary… People do and will jump through all manner of hoops to avoid whatever excessive tax there is…

    –Ed

  13. Reason has been going down hill quickly as of late. I used to be eager to get the next print version in the mail, things are different now and this article is one of many that will force me to end my subscription.

  14. Um, it’s MY economy I worry about and keeping more of MY money is always a good idea. What gives…..what goes on……

  15. I just checked the calendar. This story is almost exactly 1.5 months late, to the day.

  16. A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

    Im sorry but how the hell does that hinder the free market? How does avoiding excessive taxation have any such effect, except to reduce government collections? The money those wealthy people save by taking capital gains rather then income are reinvested in that free market you allude to. The only reason you chose the capital gains tax is because it has lower rates then other taxes. The whole article just smells like a defense of increased taxation to fund runwaway spending thinly veiled in some libertarian lingo. You could have just as well said “RAISE TAXES FOR THE CHILDREN”.

  17. Hence, like corporate taxes, the costs are often passed on to labor or the consumer.

    Any tax on a business is passed to the consumer. But Capital Gains taxes are not exclusively business taxes, so I have no idea where you are going with your argument.

    If you are going to have an income tax, what is the morally justifiable reason to not have a matching capital gains tax at the same rate? What, to the individual, is the difference between profit derived from labor and profit derived from asset transfers?

    Either nuke both taxes or keep them both identical. This disparity is absurd.

  18. A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income.

    Isn’t this a restatement of the truism that taxes distort economic decision-making?

    Isn’t the real question, does this distortion of economic decision-making (a handful of wealthy people structuring their income as capital gains rather than wages) have any negative effects? I don’t count reducing the tax take as a negative effect, by the way.

    If we’re really worried about the distortions in how people structure their incomes, then we should be talking about getting rid of taxes on income in whatever form, right?

  19. If you are going to have an income tax, what is the morally justifiable reason to not have a matching capital gains tax at the same rate? What, to the individual, is the difference between profit derived from labor and profit derived from asset transfers?

    Either nuke both taxes or keep them both identical. This disparity is absurd.

    Smartest thing I’ve read today.

  20. The only reason you chose the capital gains tax is because it has lower rates then other taxes.

    Shouldn’t, for maximum economic efficiency, the decision about whether to buy or sell, invest or take gains, be based on the economic fundamentals of the transaction itself?

    If, in the absence of any taxes, Choice A is more profitable, but the tax system makes Choice B more profitable, that is a distortion of the market.

    That’s Chapman’s point.

  21. “A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.”

    I understand that compliance/avoidance cost for the tax system in this country represent a phenomenal waste of man-hours, capital and life force. In dollars alone I’ve seen estimates for as much as 500 billion a year(tax accountants/tax lawyers/IRS budgets/individuals time/stamps etc), however the portion of this compliance/avoidance cost that comes from this one thing is relatively small. If you truly have a big problem with compliance costs(which I do) then argue for simplification fo the tax code…not HIGHER TAXES!

    The black force is strong in you Chapman. I love the way you call it “avoidance costs” as opposed to “compliance costs”….the subtle insinuation that people are avoiding some moral duty to pay more to the church of big government, when they make sure to pay taxes in accordance with the letter of the law. The “avoidance costs” you speak of are known to us tax payers with families as things we have to do to make sure we have a safety net around to help us through times in case illness returns or we lose our jobs and still need to feed our kids.

    Chapman, this is worse than your article praising the merits of mandating the purchase of $1000 alcohol ignition lock devices!

    You really think that low taxes hinders the free-market? We need to increase taxes to increase the efficiency of the economy?!

    Where did you go to school? What economist have inspired your world view? why stop at 20% why not raise capital gains taxes to 30%? that would be closer to the income tax brackets of most of those paying capital gains. Wouldn’t that decrease avoidance costs even more?

  22. You could have just as well said “RAISE TAXES FOR THE CHILDREN”.

    And I say: LOWER TAXES FOR THE CHILDREN!

  23. Apparently, REASON now believes that the welfare state should be preserved? Whatever happened to exercising discipline in government spending?

    If this is the sort of article we’ll be seeing in the future from REASON, I am anxiously awaiting the departure of Mr. Welch.

  24. If we’re really worried about the distortions in how people structure their incomes, then we should be talking about getting rid of taxes on income in whatever form, right?

    Let’s call the elimination of all taxes on income “Plan A.”

    On the off chance that Plan A doesn’t happen in the immediate future, should Plan B involve a tax system that favors one sort of transaction over another, or that treats them both the same, from an economic-efficiency point of view?

  25. You know I think Mr Chapman, was thinking to himself,

    “I hate those rich motherfuckers. Here I have to pay my huge income taxes, while those bastards pay a fraction of what I do through capital gains. Let see how can I express my frustration in a libratarean way? Oh I know I’ll just attach the words ‘hinders free markets’. I dont care if there is nothign to back that up or relates in anyway to my article. If I add ‘free market’ all the liberatarians will just goble that shit up.”

  26. Reason has been going down hill quickly as of late. I used to be eager to get the next print version in the mail, things are different now and this article is one of many that will force me to end my subscription.

    Hush, now. It’s too early in the day to make people drink.

  27. should Plan B involve a tax system that favors one sort of transaction over another, or that treats them both the same, from an economic-efficiency point of view?

    Should plan B then aim to correct that discrepancy by raising tax-X to tax-Y’s level, for the children of course? Or should we lower tax-Y to tax-X’s level. Or should we replace both with a lower tax-F? I wonder which of those would have the most hinderance to free markets?

  28. I submit that the proper Cosmotarian position should be elimination of capital gains taxes on tha basis of, and mentioned above, double-taxation.

    Double taxation is not fair and we all want fairness, don’t we? Big, fluffy, gooshey, sloppy fairess.

    Also, many old people survive on private retirement plans that are affected by the capital gains taxes. In lowering them we are being nice to the old people. Who would want to starve the old people? Apparently Mr. Chapman. Don’t starve your grandparents, lower the capital gains tax!

    Additionally, many orphanages survive on funds invested that are subject to capital gais taxes. Why Mr. Chapman wishes these orphans tossed on the street, in the same manner Senator Obama wishes for shuttered orphanages, is a puzzle, but it is a free country. I seek a free country that does not toss orphans and old people into boxes under a bridge!

    So, in summary, advocating an increase in the capital gains tax is advocacy o double taxation and agonizing death for the most vulnerable in our society.

  29. If you are going to have an income tax, what is the morally justifiable reason to not have a matching capital gains tax at the same rate?

    There is no provision in the tax code to allow for inflation of cost bases. Therefore, much of what gets taxed as capital gain is not actually capital gain at all. This makes the “capital gains tax” in reality a tax on capital derived income AND a tax on the wealth itself.

    Having a lower rate on long-term capital gains offsets this problem.

    But I’d still prefer a single rate with inflation of cost bases.

  30. Thinking too hard about real-world economic policy makes libertarians go into commie-under-the-bed mode, dun’t it?

    Mr. Chapman, you’re only supposed to write pieces making recommendations that stand no chance of adoption. Silly.

  31. Wow, not all libertarians, apparently.

    Very interesting, Dr. K.

  32. A low capital gains rate hinders the free market by inducing people (especially very wealthy ones) to find ways to take earnings as capital gains instead of ordinary income. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

    I would be very interested in hearing Mr. Chapman explain this contention.

  33. I disagree with the Reason haters. Look, we’re all in favor of lower spending, lower taxes, but let’s face it: that ain’t happening outside of our little fantasy world. And if we have to settle for a second choice, I vote for a level of taxation that actually pays for all we spend. Maybe then people will feel the damage and get spending down. ‘Cause starving the beast sure ain’t working.

  34. In other words, it encourages them to do things that would not make economic sense otherwise. A modestly higher rate would discourage such wasteful avoidance.

    I would be very interested in hearing Mr. Chapman explain this contention.

    Nearest I can figure, they would…find other ways to avoid the higher tax that don’t necessarily make economic sense.

  35. Thinking too hard about real-world economic policy makes libertarians go into commie-under-the-bed mode, dun’t it?

    joe, thats the problem though, Mr. Chapman did not do any kind of thinking. He simply assumed that the distortion possed by the costs of captial gains compliance is a hinderence to free markets. Did you see any kind of cost analysis in there? No, the only numbers he brought up were the government tax take. His whole article was basically a variation of poor people are payin for everything in this country, while the rich get richer by avoiding income taxes.

  36. Guy, for the second time on this thread, THERE IS NO DOUBLE TAXATION WITH CAPITAL GAINS.

    Dr. K, you’re correct regarding the cost basis issue. And you’re also correct that the current sledgehammer approach of simply differentiating short term from long term is far from optimal. Good points all around.

  37. ‘Cause starving the beast sure ain’t working.

    It taking more money is not working either, because they increase spending faster than they get it.

  38. MP,

    You can call a dog’s tail a leg all day and it still has only four legs.

    Yes, cap. gains is double taxation no matter how much you wish to imagine that it is not.

  39. Corporate income tax is double taxation too, for that matter.

  40. Have you guys seen the statistics showing that blacks are overly likely to be put to death by the state under or current (racist) judicial system. I submit that this is unfair as I am sure all of you agree. I propose that we fix this by creating a mandantory minimum # of executions for whites. For example if 30 black people were executed last year and they only make up 15% of the population then it should be required that we find about 200 white folks to execute each year.

    Just as income and capital should be taxed at the same rate we must fix the other obvious injustices, surely Chapman is on board.

  41. A consumption tax would solve a lot of the problems being discussed here. Let’s get rid of corporate taxes, capital gains taxes, and income taxes.

  42. Yes, cap. gains is double taxation no matter how much you wish to imagine that it is not.

    Go on chuckles. Give us an example.

  43. “Like all taxes, capital gains taxes are a burden. But given that the federal government spends nearly $3 trillion a year, taxes are a regrettable necessity. When we cut capital gains taxes, we have to raise other taxes to make up the loss. Or we have to borrow more money-which means raising taxes in the future.”

    That this appears in a Reason article saddens me. Instead of calling for holding our legislators responsible for their spending, just go ahead and submit to more taxes….After all, it is the path of least resistance.

  44. Th’ hell? When did Reason become the magazine of bigger government and higher taxes?

  45. You can call a dog’s tail a leg all day and it still has only four legs.

    GM – Have you been hanging out with Fred Thompson again?

  46. MP,

    Guy, for the second time on this thread, THERE IS NO DOUBLE TAXATION WITH CAPITAL GAINS.

    Not true. If we lowered the tax on dividends to zero due to its double taxation nature (which you agreed with) then the amount of capital gains would drop dramatically, due to the increase in dividends paid. Much of the capital gains are due to retained earnings, with a much higher retention rate than in the days of yore.

    While not ALL of capital gains are being double taxed, the part that is related to retained earnings is being double taxes.

    So, we have 3 bits that go into captital gains:

    1. Inflation
    2. Retained earnings
    3. Actual increase in value of asset

    #1 shouldnt be taxed at all
    #2 is being double taxed
    #3 should be taxed at normal income rates

    Reduce the dividend tax to zero and Im all in favor or raising the capital gains rate back to the same as regular income. After a cost basis adjustment for inflation, of course.

  47. Go on chuckles. Give us an example.

    I posted above before I got to this. heh. Done and done.

  48. ” Look, we’re all in favor of lower spending, lower taxes, but let’s face it: that ain’t happening outside of our little fantasy world.”

    so lets advocate increases in taxes and be happy with more spending!

  49. Wow. Okay, Reason can totally drop the commie pinko routine now, because the joke has seriously jumped the shark. I mean, the Carbon Tax was a good one, but seriously, higher capital gains taxes? Now you’re just trying too hard.

  50. Th’ hell? When did Reason become the magazine of bigger government and higher taxes?

    You know I actually have no problems with Reason posting good ‘contrary-view’ articles. It gives you different view points and atleast lets you know where the ‘other guy’ is comming from. However I have a problem with piss-poor articles. This is a poorly researched and very very poorly argued heap of junk. It attemps to appeal to everyone at the same time, free market for libertartians, more tax revenue for liberals, continued funding for the war and reduced deficit for conservatives. Hell, he even tried to appeal to Helen Lovejoy with his ‘its for the children’ schtick. But it completely and utterly sucks at presenting any one kind of coherent viewpoint, let alone all three.

  51. “On the off chance that Plan A doesn’t happen in the immediate future, should Plan B involve a tax system that favors one sort of transaction over another, or that treats them both the same, from an economic-efficiency point of view?”

    Well let’s see that would mean the elimination of the “progessive rate” income tax system and institute a pure, across the board flat rate income tax with no exemptions, deductions or adjustments of any sort – and making sure that all income is only taxed once and not multiple times. That means getting rid of corporate taxes and estate taxes as well.

    Yeah I can go for that.

  52. MP,

    Another example. Money that should (and used to) go to pay dividends is now being used for stock buy back, which raises the price of the rest of the stock. This money is being converted from high tax dividend to low tax capital gains. Either way, its being double taxed.

  53. GM – Have you been hanging out with Fred Thompson again?

    I was paraphrasing a Lincoln quote from a Lincoln/Douglas debate. However, The Cobra and I did hang around with Honest Abe when I was the President’s Balloon Pilot. I suspect we got it from the same source.

  54. Great article!

    ammonium: “A consumption tax would solve a lot of the problems being discussed here. Let’s get rid of corporate taxes, capital gains taxes, and income taxes.”

    Uh no. A consumption tax would dramatically reduce the tax base by eliminating savings from the tax base. Right now we tax savings – all income tax whether it gets saved/invested or not. Under a consumption tax everyone would get a 100% deduction for any income they save or invest. If you eliminate savings from the tax base, you need to dramatically raise tax on labor/income to make up for the lost revenue. If you cut both then you have no government, which I know libertarians would like, but the point is under the status quo that’s not possible and that having capital gains taxes is a good and efficient way to reach our revenue needs. The only tax that is more economically efficient is the estate/gift/GST tax.

    I would add to the article that the main claimed advantage of cutting capital gains taxes is that it increases the incentive for people to save/invest and therefore increases capital formation and makes it easier for the economy to expand. But this is not true b/c savings is inelastic – the vast majority of americans are target savers who are saving for a specific retirement goal – if it gets cheaper to save for that goal they will just save less money and spend more now.

    Additionally, making us rely more on income taxes than capital gains taxes is also bad for the economy because income taxes discourage labor/work.

  55. The decrease or elimination of dividend payments has lead to a lot of the financial fraud issues over the past decade or so. Its harder for a company to cook their books when they have to send out checks.

    The mid 70s? removal of the tax-free dividend rules screwed up things royally. Law of Unintended Consequences strikes again.

  56. robc beat me to the double tax response. However, we diverge on raising the tax.

    Gilbert Martin beat me to the solution I advocate.

    So, now I will go back to ignoring the insane ramblings of the “please tax me more and use a hot poler too” crowd.

  57. polar poker

  58. #2 is being double taxed

    I’d submit it’s a stretch to re-classify a distortionary effect as double taxation. It certainly clouds the argument by making that claim. A capital gains tax, considered on its own, is not an example of double taxation.

    Beyond that semantic quibble, I agree with you completely.

  59. “Well let’s see that would mean the elimination of the “progessive rate” income tax system and institute a pure, across the board flat rate income tax with no exemptions, deductions or adjustments of any sort – and making sure that all income is only taxed once and not multiple times. That means getting rid of corporate taxes and estate taxes as well.”

    So where are you going to make up the lost revenue from? The only choice at this point from what you are proposing is from income taxes. So should we raise income taxes to 45%? B/c that is what you are proposing by getting rid of the corporate tax and estate tax. The estate tax is the most economically efficient tax that we have. It doesn’t discourage anyone from working and it encourages would-be trust fund babies to get out and work. To get rid of the estate tax you would have to raise everyone’s income tax rates by a few percent.

  60. That means getting rid of corporate taxes and estate taxes as well.

    Can we start with the elimination of real estate taxes on non-commercial property? What I mean by “start” is start with that one in the morning and by sometime after lunch have the rest eliminated, of course.

  61. So where are you going to make up the lost revenue from?

    Um, it was lost revenue when the government was taking it. When the government stops taking it, it becomes liberated revenue.

  62. The estate tax is the most economically efficient tax that we have.

    You know…there is a moral basis to taxation. Too many people forget that. And the estate tax is one of the most immoral ones on the books.

    So should we raise income taxes to 45%? B/c that is what you are proposing by getting rid of the corporate tax and estate tax.

    Care to back that 45% fantasy number up?

  63. But this is not true b/c savings is inelastic – the vast majority of americans are target savers who are saving for a specific retirement goal – if it gets cheaper to save for that goal they will just save less money and spend more now.

    The vast majority of Americans who are target savers are not the same set of people who derive their income primarily from capital gains and push economic expansion. You should also consider which set of people contributes the vast majority of your tax base.

  64. Come on guys there is no chance of getting legislation passed to lower taxes…we have to advocate for things likely to get passed, that is how you judge your success in life. You losers will never learn.

    That is why when Hitler advocated killing 3 million jews, Chapmans grandpa was there to advocate killing 6 million non-aryians(whatever the variety) on the grounds that it would be more efficient to eliminate the “avoidance costs” of so many jews claiming to actually be gypsies.

    He also pointed out that they could use the “free-market” to help develop the most cost efficient way to eliminate these folks, after all he didn’t want to burden the children in the future by having all these prisoners sitting around. Sure he didn’t want to see a bunch of jews killed, but he was a very successful statesman! He had a history of making smart political compromises to get tough legislation passed.

  65. “Uh no. A consumption tax would dramatically reduce the tax base by eliminating savings from the tax base. Right now we tax savings – all income tax whether it gets saved/invested or not. Under a consumption tax everyone would get a 100% deduction for any income they save or invest. If you eliminate savings from the tax base, you need to dramatically raise tax on labor/income to make up for the lost revenue. If you cut both then you have no government, which I know libertarians would like, but the point is under the status quo that’s not possible and that having capital gains taxes is a good and efficient way to reach our revenue needs. The only tax that is more economically efficient is the estate/gift/GST tax.”

    Or we could get rid of the presumption that financing government should be tied to either income or consumption. Fairness in paying for government provided goods or services is no different than it is in the private sector – on a user fee basis. McDonalds doesn’t ask anyone what their income is to sell them a hamburger. Everyone who gets the same product pays the same price.

    Charge all government activities out on a user fee basis. The gas tax user fee to fiannce roads is a model for that. Any government activity that cannot be sustained on such a basis (which by definiton would include all the redistibutionist welfare programs) would be eliminated.

    Problem solved.

  66. OT: Holy crap! Has anybody seen the “art” in front of the new EPA building on Crystal Drive in Arlington, VA? It looks like a garden of stone coffins! Like the old-school Dracula-style coffin shape.

    There you go, more taxes for crap like that and for EPA to kill more people.

  67. “So where are you going to make up the lost revenue from? ”

    Who said I care anything about making up “lost revenue” ?

    I was responding to joe advocating treating all transactions equally and that is the only way that would literally do it.

  68. The gas tax user fee to fiannce roads is a model for that.

    That is a slightly broken model because much of that money is used for mass transit that a majority of the people paying the tax never use.

  69. Yes I am aware that the gas tax money is (wrongly) siphoned off for mass transit.

    That should be stopped. Still, the gas tax is closer to being a user fee than any other tax system is.

  70. The gas tax user fee to fiannce roads is a model for that.

    And the people riding the mass transit are not paying the gas tax.

  71. “OT: Holy crap! Has anybody seen the “art” in front of the new EPA building on Crystal Drive in Arlington, VA? It looks like a garden of stone coffins! Like the old-school Dracula-style coffin shape.

    There you go, more taxes for crap like that and for EPA to kill more people.”

    Woah, looks like we’re going to need to raise capital gains tax sooner than we thought!

  72. GM,

    I do agree with you in the spirit of that lesser-of-a-scam.

  73. I respectfully submit (well, okay, maybe not so respectfully) that it is not the proper business of the government to try to tweak the economy to promote economic efficiency. It is, by contrast, the business of the government to raise revenue required for essential services and to do so in a manner that is more or less equitable and not per se likely to create undue economic inefficiency.

    Admittedly, terms like “equitable” and “undue” and so forth are all debatable, but you have to get agreement that it is the proper role of the government to facilitate the economy (as opposed to the negative duty to refrain from screwing it up any more than necessary) before much of this conversation makes any sense.

  74. And if we have to settle for a second choice, I vote for a level of taxation that actually pays for all we spend. Maybe then people will feel the damage and get spending down. ‘Cause starving the beast sure ain’t working.

    I shared that reasoning for a while a few years back and still agree with the basic idea, but the fallacy of that thinking is that once the tax revenue was raised up to the point of being equal to the spending level (i.e. zero deficit, or even surplus), they would just see that as reason to spend more, making the new level of taxation too low. If you remember the last two Clinton SOTU addresses, because of the “surplus” due to projections made during the dot-com boom years, he was promising everything under the sun to everyone. The money was just burning a hole in his pocket.

  75. You know…there is a moral basis to taxation. Too many people forget that. And the estate tax is one of the most immoral ones on the books.

    If you can explain this one (preferably without referring to Republican *It’s a death tax!!!* canards and/or lying about how many family farms it will destroy), by all means, try.

  76. Normally you don’t see staffers at Reason trolling, but Steve Chapman certainly did a bang-up job of that here. His article boils down to this contention: since neither Republicans nor Democrats want to cut federal spending or even slow down the rate of increase of that spending, it must have been a bad idea to cut taxes, and we need to raise them right away.

    Let’s try another version of this curious logic: since our school district’s teachers’ union and public school administrators refuse to cut back on all the middle management patronage jobs that don’t do a damn thing to actually educate children, it was a mistake to cut their budget by the amount of the salaries of those patronage jobs and request they fire those people, because Teh Children will suffer from the cutbacks made from funds going to the classroom. In fact, let’s increase funding further and request it be spent in the classrooms, even if we know damn good and well that money will all be spent on more patronage jobs!

  77. Admittedly, terms like “equitable” and “undue” and so forth are all debatable, but you have to get agreement that it is the proper role of the government to facilitate the economy (as opposed to the negative duty to refrain from screwing it up any more than necessary) before much of this conversation makes any sense.

    Can we all agree that the powers OVERTLY enumerated in the Constitution are a full enumeration of the things the federal government should be collecting taxes to do?

  78. “But this is not true b/c savings is inelastic – the vast majority of americans are target savers who are saving for a specific retirement goal – if it gets cheaper to save for that goal they will just save less money and spend more now.”

    To argue that the elasticity of savings is either 0% or 100% is silly. It is not totally inelastic as you claim. Some people do go through a lot of calculations to estimate how much they need, but hardly anybody has 100% faith in whatever number they come up with due to the huge uncertainties in returns/inflation/future expenses etc.

    The target saver you claim most americans to be is ridiculous. If anything, most americans save next to nothing. It isn’t because they don’t prefer to have some security, it is just that they don’t feel they are making enough money to sacrific certain current consumption for uncertain future consumption. Either increasing total income or increasing the certainty of future consumption if they choose to invest (via less inflation/lower capital gains taxes/better economic outlook/increased life expectancy etc) will cause them to save more. They would also save a lot more if they could opt out of SS.

  79. Okay, how about a compromise here folks! Since Reason loves the Federal Reserve, how about we just let them print up the money instead of raising capital gains taxes. Hey, it’s worked for the past 2 Bush terms, I’m sure it can work indefinitely.

  80. The estate tax is the most economically efficient tax that we have. It doesn’t discourage anyone from working and it encourages would-be trust fund babies to get out and work.

    No, it encourages would-be trust fund parents to go and set up complex legal structures to avoid the damn tax. You do know why “trust” is part of your pejorative “trust fund baby”, right?

    Oh, and it clobbers certain upper-middle class folks whose estate is mostly illiquid small business enterprise value. Often to the point of requiring the destruction of the business to pay the tax.

    Awesome “economically efficient” tax there.

  81. ok this cosmotarian bullshit has got to go. That’s twice today that reason is pushing a socialist agenda. Whatever happened to taking a moral stand on issues and saying what is right and not right? Who cares what the status quo is? It doesn’t matter whether i get raped slowly or quickly, what matters is that i’m getting raped in the first place. Take a stand, don’t be a goddamn pussy.

    Capital gains (like any income tax) is complete socialist crap. There is no moral base for taking away what someone has earned, which will then be taxed again for almost every thing that person can do with the money.

  82. Can we all agree that the powers OVERTLY enumerated in the Constitution are a full enumeration of the things the federal government should be collecting taxes to do?

    Certainly not. Simply because something is constitutional doesn’t make it right. At most one can say that those expressly enumerated powers, duties, etc. are the only ones for which, strictly speaking, there is clear constitutional authority.

  83. E,

    If you can explain this one (preferably without referring to Republican *It’s a death tax!!!* canards and/or lying about how many family farms it will destroy), by all means, try.

    I know this one! Because all the stuff in the estate has already been taxed by other means as it was accumulated. It does not matter how rich or poor the deceased is, nor how rich or poor their heirs are, it is just unfair.

  84. You know…there is a moral basis to taxation. Too many people forget that. And the estate tax is one of the most immoral ones on the books.

    If you can explain this one (preferably without referring to Republican *It’s a death tax!!!* canards and/or lying about how many family farms it will destroy), by all means, try.

    Your pappy already paid all of taxes on that estate, even double taxes. And here you got the governmentt again with their hand in your pappy’s pocket.

  85. The people advocating for a flat tax agree with Chapman’s essay and don’t realize it. A flat tax would increase capital gains tax and reduce income tax. However, y’all are too caught up in “tax bad” rather than actually understanding the argument.

  86. damn you, montag

  87. Okay, how about a compromise here folks! Since Reason loves the Federal Reserve, how about we just let them print up the money instead of raising capital gains taxes. Hey, it’s worked for the past 2 Bush terms, I’m sure it can work indefinitely.

    In a way, the resulting inflation is simply a different way of taxing the people without passing legislation. It’s a consumption tax too and it’s non-regressive and non-progressive in that it doesn’t favor anyone…everyone pays proportionally more for everything they buy.

  88. If you can explain this one (preferably without referring to Republican *It’s a death tax!!!* canards and/or lying about how many family farms it will destroy), by all means, try.

    Estate taxes are double taxation combined with the distasteful fact that the the taxation event is the death of an individual (yes, a death tax). Why should the transfer of assets (on a basis level) be taxable? At any time? And especially at time of death, when the takee no longer has a voice beyond what is in the will? Many people with children work their whole lives and do many things to give their children a better opportunity than they had. On what grounds should that opportunity be taken away from them?

    I’m not suggesting that the inheritor should not liable for capital gains taxes on the transferred assets. The inheritor should receive those assets at the basis level.

    So you tell me, what is the moral basis for double taxation of an individual’s assets at time of death?

  89. DAR,

    It is “simply in the Constitution” because the States charged the feds to do it when they created the federal government.

    I propose an amendment system with the ability to remove powers from the federal government if they are no longer useful. Oh, wait, we already have that too.

  90. I liked this article – the purists can stuff it. I wouldn’t read Reason for very long if I could predict everything it published.

  91. You know…there is a moral basis to taxation. Too many people forget that. And the estate tax is one of the most immoral ones on the books.

    If you can explain this one (preferably without referring to Republican *It’s a death tax!!!* canards and/or lying about how many family farms it will destroy), by all means, try.

    How exactly is it a “canard” that a tax levied solely because a person died is a death tax?

    Now, if you were contending that all involuntary taxation is equally immoral and wrong, then I’d be down with that, but somehow I doubt that is where you’re going.

  92. I know this one! Because all the stuff in the estate has already been taxed by other means as it was accumulated. It does not matter how rich or poor the deceased is, nor how rich or poor their heirs are, it is just unfair.

    Actually, that’s not true. If my dad bought a boatload of shares of MSFT in 1990, held it and then passed away, the gains were never taxed.

  93. It does not matter how rich or poor the deceased is, nor how rich or poor their heirs are, it is just unfair.

    Weren’t you the very person who was bitching loudly about an inappropriate obsession with *fairness* when talking about political issues? I asked how it was *immoral*, not how it was *unfair*. Are you seriously conflating the two?

    Are you really that stupid? Because you might as well just become a Democrat with logic like that. It is, after all, the same logic they use to do all the things you claim to hate.

  94. How exactly is it a “canard” that a tax levied solely because a person died is a death tax?

    Because it’s not a tax on the death, it’s a tax on the transfer of assets. It just so happens the transfer happens at death.

  95. The answer, of course, on the estate tax debate is that the incident of taxation falls on the heir, not the decedent. Arguably, a flat tax rate on all accretions of wealth (as I believe the IRS likes to phrase it) that covered inheritance would be no worse than any other taxable event.

  96. why not raise taxes on tax-free foundations? have you seen all the evil put forth by these foundations advocating socialism? Have you noticed the billions in avoidance costs that really rich people put into figuring out BS foundations to start up so they can dole out salaries to help promote and pay for the advocacy of special interest meant to screw the little guy? Did you notice that the income tax and the tax free foundation exemptions were both pushed by the same super rich people who first took advantage of the tax free foundation laws?

    I know the stock answer, “tax free foundations are morally superior to gabe so their wealth should be encouraged by the government while gabe’s should be discouraged.” However, I have not heard any convincing arguments about how they are morally superior to my spending choices.

  97. E,

    If you are so blind to context as to make that 2:12pm post with a straight face then you really do not need to be casting stupidity stones from your glass trailer.

  98. AAAAUUUUUGGGGGHHHHH!!!!!

  99. The people advocating for a flat tax agree with Chapman’s essay and don’t realize it. A flat tax would increase capital gains tax and reduce income tax. However, y’all are too caught up in “tax bad” rather than actually understanding the argument.

    I suppose in your mind, since we allow that one of the most minute outcomes of a flat tax would be that the capital gains and income tax rates are equal, we agree with Chapman? I guess thats all there is to a flat tax and to Chapman’s article.

  100. It looks like Reason Magazine is now officially 20% of the way towards communism. A recent post snarked at Ron Paul for not just giving up and accepting a central bank and fiat currency. As any educated person knows, this is the fifth plank of the communist manifesto. Now in coming out of the closet for increase Capital Gains Tax, it has officially endorsed Marxist Plank #2. Any other planks in the Communist Manifesto that Reason has embraced is left up as an exercise to the reader.

  101. Guy Montag:

    My point remains; namely, that what may be the constitutional role of government and what may be the proper role of government are two different issues.

  102. Mo: why should your shares of MSFT be taxed? You took a risk in buying stock and you should profit. The government took no risk and is expecting a cut? What kind of Mafia logic is that? If MSFT goes down and you lose money will the government give you back a share of your losses? (i’m not talking about carry forward tax loss to offset other taxes)

  103. Mo,

    Are you trying to tell us that stock is exempt from estate taxes?

  104. Now, if you were contending that all involuntary taxation is equally immoral and wrong, then I’d be down with that, but somehow I doubt that is where you’re going.

    No, that’s *exactly* where I was going. All involuntary taxation is immoral on its face. I was making fun of the idea that at its root taxation was a *moral* rather than *pragmatic* political issue. Because it isn’t. It is akin to saying that death is unfair and is therefore a moral issue; in some theodicic sense it is, but is unhelpful for analyzing the practical consequences of death existing.

    Of course, “double taxation” is also *unfair*, but since when do people around here give a damn about fair?

    How exactly is it a “canard” that a tax levied solely because a person died is a death tax?

    It’s a canard because it is literally inaccurate and also an emotional ploy. The tax doesn’t happen because you die; the tax is upon wealth transfer, and as R C Dean pointed out in another thread on the subject, would be incurred as a tax even if both parties were still alive. It is really a “gift tax” of sorts, primarily to prevent tax shelters being created out of creative gift giving.

  105. I’d submit it’s a stretch to re-classify a distortionary effect as double taxation.

    I submit that money that has already been taxed that is distorted into a new area is then being double taxed. Capital gains, per se, arent double taxed, but due to distortion, some part of them is now.

  106. Starve the beast is the most moronic principle in the world. It actually encourages more spending because the people demanding handouts (taxpayers) don’t actually pay for it, they shift paying for their consumption to the young.

    Instead, people get a whole host of government services for far less than it costs. Reducing the price of something increases its demand. If you make people pay for what they’re getting, they’ll feel the pain of the cost and be forced to make trade-offs. The ideal solution is a high standard deduction (and no other deductions) flat tax, remove payroll taxes and pass a balanced budget amendment.

  107. While all of us here would certainly agree that spending is absurd and needs to be lowered… are we seriously sitting here at the website for a Libertarian magazine where an author is defending the raising of taxes?

    I mean, seriously, what?

    Did April Fools come late this year?

  108. Mo,

    Please educate me on the way stock is handled in an estate tax situation?

    If stock 1,000 shares of stock x were purchased for $100/share in 1990 and then they plopped into your lap through the death of your father in 2008 and the price per share were $1,000 at the moment of his death, is the value of the stock as seen by the feds $100,000 or $1,000,000?

    If the latter then all of the value is taxed, including the gain, you know.

  109. tax bad

    Finally, something I can agree with.

  110. R C Dean pointed out in another thread on the subject, would be incurred as a tax even if both parties were still alive.

    First of all if you are just going to decree all your assets to your kids as a gift, you need a better tax lawyer/accountant. There are ways you could transfer wealth to your kin while you are alive without having it undergo double taxation.

  111. val,

    You get stuck with that “gift tax” when you do that, and the giver is the stickee.

  112. I was making fun of the idea that at its root taxation was a *moral* rather than *pragmatic* political issue.

    Who said that at it’s root it is a *moral* issue? The morality (or justness) of taxation is clearly a component of it. You sell a tax to the people not simply by justifying that you need the revenue, but also by justifying that the taxation methodology is morally sound (either on the basis of fairness or other squishy moral concepts).

    Sin taxes are a prime example of taxes that are sold to the public more on their moral basis than their pragmatic basis.

  113. So where are you going to make up the lost revenue from?

    Reduced spending? Perhaps we set the new unitary/global rate at a level that is revenue neutral?

    The estate tax is the most economically efficient tax that we have.

    Odd. I thought it was widely understood to have all kinds of negative effects, and to actually contribute little to nothing to the public purse at the end of the day.

    Because it’s not a tax on the death sale, it’s a tax on the transfer of assets. It just so happens the transfer happens at death on the sale.

    Nope. I still think its a sales tax, and a death tax.

    Although, technically, it also applies to gifts made before death, that was just to prevent people from avoiding the tax by giving everything away before they died.

  114. “First of all if you are just going to decree all your assets to your kids as a gift, you need a better tax lawyer/accountant. There are ways you could transfer wealth to your kin while you are alive without having it undergo double taxation.”

    How about a few ounces of palladium for each birthday and Christmas? Oh wait, that makes me sound like a kook. I take that back. Um, I bequeath all my assets to Reason Magazine so they feel obliged to hire my kin as editors, so they can write socialist prattle.

  115. You get stuck with that “gift tax” when you do that, and the giver is the stickee.

    Not if you do it right. You can gift up to 11k? (it used to be 10k and has gone up, but not sure to where) per year free of the gift tax. Which means that a couple, for example, could give each of their children (or grandchildren or whoever) 22k per year.

    Admittedly, if you have billions to transfer, this doesnt really help.

  116. Um, I bequeath all my assets to Reason Magazine so they feel obliged to hire my kin as editors, so they can write socialist prattle.

    Or you could just start your own foundation, like Ford, with the same outcome of course.

  117. Who said that at it’s root it is a *moral* issue?

    You did:

    MP | May 15, 2008, 1:46pm

    You know…there is a moral basis to taxation. Too many people forget that.

    Emphasis probably not necessary, but still…

  118. Not if you do it right.

    I was talking about the lump sum “wrong” way.

  119. How about a few ounces of palladium for each birthday and Christmas? Oh wait, that makes me sound like a kook.
    ….

    Not if you do it right. You can gift up to 11k? (it used to be 10k and has gone up, but not sure to where) per year free of the gift tax. Which means that a couple, for example, could give each of their children (or grandchildren or whoever) 22k per year.

    heh, thats the moral problem I have with the estate tax, to me its akin to ‘Hahaha, bitch! You failed to game the system while you were still alive? Now we are gonna take your shit!’

  120. I thought it was widely understood to have all kinds of negative effects

    Amongst the odd effects (Im not sure if this is a negative or a positive), it actually changes, by a small amount, when people die. People are slightly more likely to die on a tax minimizing date.

    This has been measured in other ways. Older jewish people are slightly less likely to do right before passover and slightly more likely right after. Ditto other major events (and other people). People can subconsciously will themselves to live for one last postive thing.

    This happened with my grandfather. My grandmother was in the hospital in the “city”, a few hours away from home. She got released, they went back to their farm, and he died peacefully in his rocking chair on the front porch a few days later. Okay, technically, he died in the hospital, but Im not sure he was ever really conscious there. He died on the farm he had lived his entire life. He wasnt willing to die in the big city.

  121. You know…there is a moral basis to taxation. Too many people forget that.

    To clarify for LMNOP, that wasn’t meant to imply that the moral basis was the root of taxation. Simply that taxation had a moral component along with a practical component, and that most people overlook the moral component and focus exclusively on the practical component.

  122. People die when they die. They can’t hold on for special occasions if their body says that it’s time to stop.

    http://www.psychosomaticmedicine.org

    Also, why waste space with this syndicated crap? This is even weaker than the last Steve Chapman article…you know, the one that was about McCain and his foreign policy? The one that didn’t mention his foreign policy?

  123. Guy,
    No I was saying that it’s not true that everything passed in an estate is not already taxed as you claimed.

    It’s called reading comprehension, you should try learning it.

    Mo: why should your shares of MSFT be taxed? You took a risk in buying stock and you should profit. The government took no risk and is expecting a cut? What kind of Mafia logic is that? If MSFT goes down and you lose money will the government give you back a share of your losses? (i’m not talking about carry forward tax loss to offset other taxes)

    adrian,
    It’s the same mafia logic that says they get to tax the fruits of my labor. I’m of the opinion that labor and capital should be taxed equally. I know it’s crazy, but I think capital and labor should be taxed equally and let the market figure out the right balance.

  124. Mo,

    Try writing a little more accuratly. I am sure that it is impossible for you to stop being an ass. Like “then the gains were not double taxed”. Hooray, you found a tiny exeption.

    Mo | May 15, 2008, 2:11pm | #

    I know this one! Because all the stuff in the estate has already been taxed by other means as it was accumulated. It does not matter how rich or poor the deceased is, nor how rich or poor their heirs are, it is just unfair.

    Actually, that’s not true. If my dad bought a boatload of shares of MSFT in 1990, held it and then passed away, the gains were never taxed.

  125. Note: my 2:28 post is merely directed at my approval of the term “death tax.” I’m still quite aware that events other than death can trigger the tax.

    I’m of the opinion that labor and capital should be taxed equally.

    Really, I think you’re saying that “earnings” from labor and capital should be taxed equally. In principle, I would agree, although this would mean backing out inflation from the earnings on capital, yes? And having a flat tax on earnings from labor, yes?

    On the whole, though, I prefer consumption taxes in principle. In the modern global market, though, they might be too easy to avoid, and/or enforcement might be too intrusive.

  126. Actually, that’s not true. If my dad bought a boatload of shares of MSFT in 1990, held it and then passed away, the gains were never taxed.

    That’s because there never are any gains on stock until it’s sold. If he passed the stock to you, nobody has realized any gains. You should hold it at the original basis, though, not a stepped-up basis.

  127. To clarify for LMNOP, that wasn’t meant to imply that the moral basis was the root of taxation. Simply that taxation had a moral component along with a practical component, and that most people overlook the moral component and focus exclusively on the practical component.

    Clarification accepted. And to be honest, I was reading you less charitably than I read most comments. I don’t know why…I was in a bad mood a few hours ago. 😉

  128. This has been measured in other ways. Older jewish people are slightly less likely to do right before passover and slightly more likely right after. Ditto other major events (and other people). People can subconsciously will themselves to live for one last postive thing.

    Classic Woody Allen Stand-up: Take this wristwatch, for example. Beautiful, isn’t it? My grandfather, on his deathbed,… sold me this watch.

  129. “The people advocating for a flat tax agree with Chapman’s essay and don’t realize it. A flat tax would increase capital gains tax and reduce income tax. However, y’all are too caught up in “tax bad” rather than actually understanding the argument.”

    Uhhhh nooooo… flat tax people don’t want to tax income from savings/investment at all. They want no capital gains tax. The “flat tax” by Hall Rabushka is all about implementing a flat rate consumption-based tax that removes savings from the tax base.

  130. In principle, I would agree, although this would mean backing out inflation from the earnings on capital, yes?

    Why? Raises that I get due to inflation aren’t backed out.

    Try writing a little more accuratly. I am sure that it is impossible for you to stop being an ass. Like “then the gains were not double taxed”. Hooray, you found a tiny exeption.

    How could I be more clear? You stated everything passed in an estate tax has already been taxed. I told you the proportion that wasn’t. It’s pretty simple. Maybe you should’ve taken one of the liberal arts classes you dismiss so much. BTW, I find it amusing that you have 2 blatant spelling errors in comment telling me to write more accurately. If proving you wrong makes me an ass, then I don’t want to not be an ass.

    By the way that “tiny exeption[sic]” makes up 37% of the value of estates worth more than $1 million and about 56% of estates worth more than $10 million. Since only estates larger $1 million are taxed, over 1/3 of cap gains is on unrealized cap gains.

  131. Mo says:
    “Starve the beast is the most moronic principle in the world. It actually encourages more spending because the people demanding handouts (taxpayers) don’t actually pay for it, they shift paying for their consumption to the young. ”

    Th organization that makes it so easy for people to vote for consumption today and force future generations to pay for it is the Federal Reserve. The “responsible” answer to this problem is to eliminate the Federal Reserve, not to increase taxes. As we already know, Reason Foundation/Koch/Exxon policy prohibits discussion of eliminating the Federal Reserve so we are left with Reason advocating tax increases.

  132. Having lower capital gains rates hurts economic efficiency because it requires higher rates on labor/work income. It also hurts economic efficiency in complying with internal revenue code sections because it makes a whole host of sections important regarding differentiating between investment income and wage income. When the rates are the same none of this complexity matters and can be ignored by everyone. When you differentiate the rate structures you increase tax code complexity and hence increase tax law compliance costs for everyone.

  133. Uhhhh nooooo… flat tax people don’t want to tax income from savings/investment at all. They want no capital gains tax. The “flat tax” by Hall Rabushka is all about implementing a flat rate consumption-based tax that removes savings from the tax base.

    The biggest flaw in the Hall Rabushka proposal is its unwillingness to tax capital gains. It’s unfair to define all proposers of the flat tax as adopting exactly the Hall Rabushka proposal. In fact, you’ve seen probably three examples on this very thread (if I’m correct, RC Dean, robc, and myself…and probably others like Dr. K.) who would argue in favor of a flat tax on both capital gains (sans inflation) and labor.

  134. Having lower capital gains rates hurts economic efficiency because it requires higher rates on labor/work income.

    Holly fuck, I must have missed the section in the article where Chapman said we shuld raise raising capital gains taxes so that we can lower income tax rates. I get thats the standard liberal dogma, lower taxed for lower and middle classes, raises taxes on the rich. But he cant even get that right in the article.

  135. Uhhhh nooooo… flat tax people don’t want to tax income from savings/investment at all. They want no capital gains tax. The “flat tax” by Hall Rabushka is all about implementing a flat rate consumption-based tax that removes savings from the tax base.

    Uhhhhh yeah. I’m a flat tax person and explicitly stated that I wanted to tax all earnings equally, capital and labor based.

  136. “I must have missed the section in the article where Chapman said we shuld raise raising capital gains taxes so that we can lower income tax rates. I get thats the standard liberal dogma, lower taxed for lower and middle classes, raises taxes on the rich. But he cant even get that right in the article.”

    Well at this point he is talking about raising taxes to make up the budget deficit. We can’t really talk about revenue neutral tax policies that equally lower income taxes at the same time as raising capital gains taxes. We need to make up the revenue gap first. Obviously everyone agrees we should do it by cutting spending but that clearly isn’t going to happen/isn’t realistic so the next thing is to talk about what is the most efficient tax to do it.

  137. “Uhhhhh yeah. I’m a flat tax person and explicitly stated that I wanted to tax all earnings equally, capital and labor based.”

    Uhhhh then you may want to write an angry letter to Robert Hall and Alvin Rabushka and Steve Forbes blaming them for co-opting the word “flat tax.” When you use the word “flat tax” to describe your policy preference in tax policy circles, people will assume you are referring to Forbes/Hall/Rabushka’s flat rate consumption tax and that you want a zero tax rate on savings/investment income.

  138. And everyone realizes it isn’t likely that we’ll get legislation passed to stop cops from torturing blacks when they make arrests with planted drug evidence so let just try to help them torture blacks more efficiently.

  139. Obviously everyone agrees we should do it by cutting spending but that clearly isn’t going to happen/isn’t realistic so the next thing is to talk about what is the most efficient tax to do it.

    First of all you are giving that article alot more credit than it deserves. He does not suggest to raise the capital gains tax to the level of income tax, he wants to raise it only a little bit to some arbitrary number. He does not talk about which is the most efficient tax to raise, he just states its the capital gains tax with zero to back that up, except the completely false statement that the lower capital gains tax is somehow a hinderance to free markets.

    Since they wont cut spending, the next thing to talk about is raising taxes? Really? Wow you are in the wrong place.

    I maintain that the next and most efficient step would be to simply throw all tax law students into forced hard labour and to appropriate their assets to raise the tax base.

  140. “Why? Raises that I get due to inflation aren’t backed out.”

    Yes they are. The IRS tax tables are adjusted for inflation every year.

  141. Uhhhh then you may want to write an angry letter to Robert Hall and Alvin Rabushka and Steve Forbes blaming them for co-opting the word “flat tax.”

    You’re the one putting people into the Hall-Rabushka box. How about Phil Gramm’s flat tax proposal? Or Estonia’s flat tax? Do they zero out capital gains? No.

  142. Yes they are. The IRS tax tables are adjusted for inflation every year.

    The tables are, but the AMT isn’t. That requires specific legeslation.

  143. Arrrgh! That’s it I am cancelling my subscription!

  144. Yes they are. The IRS tax tables are adjusted for inflation every year.

    If you did a flat tax for capital gains and income, then the problem would be solved for both then. Problem solved.

  145. MP,

    who would argue in favor of a flat tax on both capital gains (sans inflation) and labor.

    Only if the flat tax rate is 0%.

    I vote Plan A.

  146. Actually, my Plan B would be a flat tax on labor, dividends, and capital gains (inflation adjusted). Corporate income taxes and estate taxes would go to zero to avoid double taxation. All corporate profits would eventually end up as either dividends or capital gains so nothing is going untaxed. All inheritances/gifts would shift cost basis to the new owner (in the case of any capital) and cash transfers tax free.

  147. Chapman writing something against Republicans…..(gigantic) yawn……i am just waiting for his “libertarian” take on hillary’s health plan

  148. Gilbert Martin:
    “”Why? Raises that I get due to inflation aren’t backed out.”

    Yes they are. The IRS tax tables are adjusted for inflation every year.”

    Pff, if you even believe the inflation numbers that the government puts out. But of course, if I say that inflation is an increase in the money supply, or that the government deliberately ratchets down measurements of price inflation, I’d be a kook.

  149. This is absurd. The whole premise of a capitol gains tax is a slap in the face of the free market. The only real answer is the FAIR TAX!

  150. Right on Chapman – something reasonable in Reason, nice change.

    val – “I hate those rich motherfuckers. Here I have to pay my huge income taxes, while those bastards pay a fraction of what I do through capital gains.”

    so, how does the Libertarian position rationalize that poorer people should be paying higher tax rates than richer people. Are you letting the real agenda (screw the poor – we’re rich libertarians) out of the bag there Val?

  151. The whole premise of ANY tax is deliberate income and wealth redistribution.

    Whether it’s an income tax, a consumption tax or a property tax, it’s all the same.

    One’s income is not a “service” provided to them by government.

    One’s consumption level is not related to any “service” provided to them by government.

    One’s property value is not a “service” provided to them by government.

    Charge out government activities on a user fee basis the same way goods and services are provided in the private sector.

    Eliminate government redistribution schemes that are, by definition, NOT paid for by the users.

    That would take care of the revenue and spending problems both.

  152. The host is getting pretty weak now, so the parasites are sucking even harder.

  153. Val “Since they wont cut spending, the next thing to talk about is raising taxes? Really? Wow you are in the wrong place.”

    The only alternative to cutting spending or raising taxes is to borrow-and-spend our way into oblivion and run up massive deficits. If that’s what you are suggesting… then YOU are in the wrong place buddy. Running up deficits instead of raising taxes does not mean we get lower taxes it just means we will pay higher taxes in the future. As someone mentioned before, budget deficits also encourage spending increases b/c people get services they don’t have to pay for so they think medicare/social security/big mighty military is cheaper than it actually is.

  154. robc: “Actually, my Plan B would be a flat tax on labor, dividends, and capital gains (inflation adjusted). Corporate income taxes and estate taxes would go to zero to avoid double taxation. All corporate profits would eventually end up as either dividends or capital gains so nothing is going untaxed. All inheritances/gifts would shift cost basis to the new owner (in the case of any capital) and cash transfers tax free.”

    Eliminating the estate/gift/gst tax from the tax base means we would have to increase tax on labor. The estate/gift tax is the most economically efficient tax we have it hurts the economy the least out of any tax. We would have to raise taxes on labor/work to make up for it which is a terrible idea b/c that impacts the economy a lot by discouraging work. Terrible terrible terrible terrible idea. Unless you are Paris Hilton or Ivanca Trump.

  155. Eliminating the estate/gift/gst tax from the tax base means we would have to increase tax on labor income.

    Fixed.

    The estate/gift tax is the most economically efficient tax we have it hurts the economy the least out of any tax.

    Some taxes, no matter how spectacularly efficient they look to a pointed headed academic economist, are too distasteful (in this case, from both a double taxation and a moral standpoint) to be considered.

  156. “In a way, the resulting inflation is simply a different way of taxing the people without passing legislation. It’s a consumption tax too and it’s non-regressive and non-progressive in that it doesn’t favor anyone…everyone pays proportionally more for everything they buy.”

    Actually, inflation is quite regressive. The war-profiteers and other big players are at the front of the money line. By the time prices adjust, they have transferred their wealth into inflation-proof assets and the little guy is left holding the bag.

  157. “As someone mentioned before, budget deficits also encourage spending increases b/c people get services they don’t have to pay for so they think medicare/social security/big mighty military is cheaper than it actually is.”

    The top 50% of income earners already pay 97% of the income taxes. The bottom 50% pay virtually nothing yet get plent of government services. The 50% getting the free ride will still be wanting spending increases regardless because almost all of the tax increases to balance the budget will still be on that top 50%

  158. “The estate/gift tax is the most economically efficient tax we have it hurts the economy the least out of any tax. We would have to raise taxes on labor/work to make up for it which is a terrible idea b/c that impacts the economy a lot by discouraging work.”

    Funny how you keep invoking “economic efficiency” as a rationalization for keeping or raising some tax you favor but don’t apply that principal to what al lot of the tax money is being used for. It most certainly isn’t “economically efficient” for the government to be taking money away from people who earned it for the express purpose of handing it out to people who didn’t. Rewarding some people for NOT working and penalizing others who do by making them finance it certainly “discourages work”.

  159. pushing massive deficits into teh future would be ok if we got the benefits of real economic growth that would result from huge reductions in taxes. Why would it be ok? becuase we’d pay off all the future debt in worthless currency, if we accelerate the deficits we’ll eventually throw the dollar into the dustbin of history and we will be debt free…from then on, even idiots will refrain from lending money to governments at “risk free rates” people will demand payment in a sound currency and civilization will be able to thrive again.

  160. From a young age, I was taught to save and invest wisely.

    This was good.

    Then I graduated college, and landed a job that paid, well, shit.

    This resulted in me having to pay capital gains tax every year while working at a shit job that paid around $7/hr.

    As a result, Steve Chapman can take his proposition to raise the Capital Gains tax and shove it right up his ass.

    So far as I can tell, Capital Gains punishes the joe job worker who possesses the brains to do some investing.

    Of course, Roth IRA’s ameliorate this, but my utter hatred of the Capital Gains tax remains.

  161. taxlawstudent

    I never said my Plan B was revenue neutral.

    It isnt.

  162. mediageek,

    Roth IRA’s ameliorate this

    The only conspiracy theory (other than ACC officials and the tobacco road mafia) I believe in is my complete distrust in Roth IRA money being tax free when taken out.

    Not really a conspiracy (I dont think it was planned), just thinking that will be an easy sell down the road. Extra revenue aimed only at the “super-rich”. They earned that money tax-free, how dare they.

    The ACC conspiracy thing isnt a conspiracy either. I think its too blatent for that.

  163. Yey, a “libertarian” defense of taxation?!

  164. Chapman’s article displays what could charitably be called an utterly delusional view of what congress will do with any extra money a tax increase provided them.

    Congress is not going to use the extra money to decrease the deficit, they are going to spend it on politically connected special interests.

    Mr. Chapman you might want to take a look at this article on the farm bill before advocating giving the idiots in congress any more of the taxpayers hard earned money.

    Beet on the Brat

    The good news? A boneheaded proposal in the lousy $300 billion-plus farm bill seems to be holding up its passage. The bad news? We live in a country where anyone within barfing distance of power thinks that what the U.S. sugar industry needs is more protection from the federal government.

  165. The solution to the problem of capital gains taxes is obvious and simple in principle.

    Get rid of corporate taxes and treat capital gains like any other income

    The whole justification for lower capital gains rates than regular income is that capital gains are being “taxed twice”, and therefore deserve to be taxed less. I would agree with this. But instead of trying to get 2+2 to add up to four, it would be much easier to just make it 0+4=4. Our corporate tax rates are among the highest in the world, and off-shoring is a logical consequence of this. To a much larger degree than actual human beings, fictional entities such as corporations will move to wherever taxes are low.

    It is time to scrap the entire federal tax system, and replace it with something elegant but simple: a flat tax rate (~30%) with a very ample per-person deduction (say, $12500, automatically adjusted for inflation each year). No other deductions. Period. A family of four wouldn’t pay a dime until they hit $50,000, and the system is both progressive and transparent. Sounds reasonable to me…

  166. “Funny how you keep invoking “economic efficiency” as a rationalization for keeping or raising some tax you favor but don’t apply that principal to what al lot of the tax money is being used for. It most certainly isn’t “economically efficient” for the government to be taking money away from people who earned it for the express purpose of handing it out to people who didn’t. Rewarding some people for NOT working and penalizing others who do by making them finance it certainly “discourages work”.”

    If u banned estate taxes you would have to make up for them with higher taxes on income. You would be taking money away from people who earned it and giving it to rich dead people’s children, the opposite of the goal you just presented.

  167. Steve,

    Please work on your satire. Your delivery made it sound as if you approve of a big central government spending and raising taxes to fund the welfare state (socialism). I wanted to laugh, but it wasn’t funny.

    Less taxes = less government. Learn it, Live it.

    Oh, and next time write an article we can pass on to the Asshole politicians who are borrowing from the Chinese government to finance their boondoggles and throwing away the future of our children and country.

  168. Actually, inflation is quite regressive. The war-profiteers and other big players are at the front of the money line. By the time prices adjust, they have transferred their wealth into inflation-proof assets and the little guy is left holding the bag.

    Yea, you better watch out for those guys. All we, er, they want is high inflation and high taxes. Just look at my, er, their comments whenever this comes up!

  169. I think the best solution would be a 5 year, renewable by majority vote, spending freeze at the level current at the time initiated. Make the congress have to determine actual spending priorities and allow the lower priority spending to disappear through attrition, if you will.

    JC

  170. A libertarian publication advocating higher taxes….We’ve been infiltrated.
    Anybody who pays attention to politics knows that if Congress gets more money, they spend more money.

  171. Well, it probably couldn’t hurt to find additional domestic sources of revenue. Better that than simply borrowing from other countries, which might as well be Monopoly(tm) money as far as real, liquid assets are concerned.
    Granted, increased domestic revenue needs to be coupled with limits on borrowing in order to reduce federal borrowing with any hope of success. That’s another issue, however, and the war-hawks have been eating the federal budget for too long now.

  172. Dammit, I leave for just a week because I’m working overtime, and socialists take over the website!

  173. “If u banned estate taxes you would have to make up for them with higher taxes on income. You would be taking money away from people who earned it and giving it to rich dead people’s children, the opposite of the goal you just presented.”

    I didn’t present any goal – I was commenting on your double standard in yakking about “economic efficiency” regarding the tax revenue side but not the spending side. Economic effieciency would require getting rid of every single redistributionist entitlement, subsidy or giveaway spending program.There is nothing even remotely “economically effecient” about a single one of them. The estate tax could be easily be eliminated then – as well as drastically reducing all the rest of the taxes.

    Furthermore your characterization about “giving” money to dead people’s children is incorrect. The only people being “given” anything are those whose total dollars of tax payments of all types combined are less than the total dollar value of government services that they personally have received back in return in exchange for their money calculated on a user fee basis Anyone whose total dollars of tax payments exceed the value of services received is “giving” somebody else money – regardless of what their income or tax rate happens to be.

  174. Let’s call the elimination of all taxes on income “Plan A.”

    On the off chance that Plan A doesn’t happen in the immediate future, should Plan B involve a tax system that favors one sort of transaction over another, or that treats them both the same, from an economic-efficiency point of view?

    Plan B should be “work towards accomplishing plan A.”

  175. taxlawstudent,

    I see you are one of those parasites who thinks death should be a taxable event.

    If u banned estate taxes you would have to make up for them with higher taxes on income. You would be taking money away from people who earned it and giving it to rich dead people’s children

    Let me buy you a clue. The death tax has not forced Ted Kennedy to work one day in his life.

    That fact provides all the evidence you need that the death tax does not do what you think it does.

    Furthermore many of the people that are hurt worst by the death tax are hard working people who are equity rich and cash poor.

    They find out how much equity they have when they have to sell their family business or ranch to pay for the death tax.

    Another clue for you, the Ted Kennedys, Bill Gates, and Warren Buffets of the world are never going to pay the death tax.

  176. I thought Reason was supposed to be a “libertarian” publication.

    Debates about the “best” way to extract money from the populace in order to more easily tell us what to do and start unecessary wars really just divert attention from the real question:

    Do we really need a $3 trillion dollar federal government? Does it make sense that more people in America work for the govenment than in manufacturing?

    The fact that the “libertarian-lite” crowd has conceded these arguments is truly sad, but it explains a lot about how we got here.

    With government spending and regulation at these levels it really doesn’t matter what manner the government invents to pay for it.

    The real method of payment is inflation driven by the federal banking cartel. But apparently “libertarian-lite” has alrady conceded that point as well.

  177. DS, I suppose I should come out and admit that I’m a moderate socialist. We *have* infiltrated! Mwah haha!
    Seriously, though.
    I come here for the economics discussions because most left-leaning publications don’t really delve into the actual theory of it or anything like that; they just accuse various entities of “squeezing the poor” and so on.
    And what’s so bad about analyzing our government’s current financial situation and trying to move it in a more responsible direction? It might not cleave 100% to libertarian ideals on taxation and gov’t mindset on spending, but so what?
    If Reason is about “free minds” as well as free markets, then we (readers AND writers, alike) get to have whatever opinions they want. You can call it a libertarian publication, and I’m sure it’s frustrating when people who fundamentally disagree with you (on some things, at least) come in and add different voices to the debate.
    But hey, “free minds” come first.

  178. “Fuck the children”

    Does anyone REALLY say this in real life?

  179. “Another clue for you, the Ted Kennedys, Bill Gates, and Warren Buffets of the world are never going to pay the death tax.”

    Democratics hate this line of reasoning. They know damned well that Papa Joe K. put the estate so out of reach, that when he took the celestial dirt nap, the only taxes that could be taken was somewhere over $100K. On an estate worth – at the time – of somewhere around $50 million.

    I’m convinced that Democrats, if they could (Constitutionally) find a way, would increase taxes on everyone but themselves. Nothing’s stopping the Clintons or the Obamas from refusing Bush’s tax cuts “for the wealthy”; they could easily cut a check for the “undeserved” amount. Rat bastards.

  180. “Anybody who pays attention to politics knows that if Congress gets more money, they spend more money.”

    “Giving money and power to politicians is like giving whiskey and car keys to teenage boys” – P.J. O’Rourke

  181. Libertarian Guy,
    I’m pretty certain no one said “Fuck the Children” in real life. However, given how often “the children” are called upon as a justification for statism I can safely say “to hell the children” without any guilt. I speak as the oldest of seven siblings, who had to put up with the others for 15 years.

  182. Yes, Mr. Welch, I’d like a job on your staff. I’m very knowledgeable about economic issues, especially those involving labor.

  183. Most people here seem to have the following preference ranking: cut spending > incur debt > raise taxes.

    That makes no sense whatsoever. In part, because of what Mo wrote above (May 15, 2008, 2:21pm). But also because of a basic truth that no one here seems to recognize: DEFICIT SPENDING *IS* TAXATION. Every penny that the government borrows, it has to pay back with future revenue.

    In fact, deficit spending is worse than taxation, due to the added cost of borrowing (interest).

    So when the government raises taxes to cover the deficit, it’s not changing the net amount of taxes on society. Rather, it’s imposing those taxes in the present rather than the future.

  184. “Most people here seem to have the following preference ranking: cut spending > incur debt > raise taxes.

    That makes no sense whatsoever. ”

    Actually it makes an enormous amount of sense.

    Permanently cutting the size of the government is WAY more important than silly debates about how best to rob the citizens of their money to pay for it. Taxes, borrowing, and printing money out of thin air are all terrible ways to to pay for a bloated, parasitic, corrupt and dangerous central government (and it’s subordinate state goverments).

    Although I am more and more coming around to the idea that taking the money to pay for government directly from people’s wallets is the best way to show them what it actually costs, there are some crippling problems with that strategy:

    Two factors make that all but impossible: 1) The vast majority of the taxes that fund leviathan come from the very wealthy and corporations, so the majority of Americans don’t pay very much at all DIRECTLY for the federal government anyway. 2) with income tax witholding people still won’t know the difference as long as they get a “refund” check each year (yes, people are that stupid). The people who planned this system aren’t stupid (just evil), they knew that the only way the masses would accept big government is if they didn’t have to pay for it (directly). They have suceeded.

    So let’s just concentrate our efforts on the 3 trillion unecessary dollars it spends, and growing and not get sucked down pointless Republicrat arguments that result in taking our eye off the REAL issue.

  185. Seriously, when did Reson start with the “oh hell, we can’t reduce government, so let’s make sure we pay for it.” point of view? On balance, I think we’d all agree, but I’d hope that Reason would be the one place where people still load their guns, point them into the air and shoot them excitedly while shouting “Smaller government now!”

  186. So what I’m hearing, DS, is that it’s a red herring to discuss the problematic nature of borrowing billions of dollars to pay for the federal budget.
    To me, that says that tax cuts aren’t enough. The government, clever foxes that they are, have figured out that they don’t have to collect taxes to make money. They can borrow it like any schlub with a credit card, and keep spending money like it’s going out of style.

    Raising taxes won’t help; you’re right about that. Printing more money is stupid, too! But there’s no incentive here (yet) to get the government to stop borrowing money.

    If we get the government to drop taxes down to a much more palatable level, that doesn’t mean they’ll actually shrink down to compensate. We’ve had a Republican in office for eight years, and it seems that he’d prefer to borrow money AND lower taxes (or at least say he wants to lower taxes; my research on the subject isn’t very comprehensive) so that the actual budget doesn’t have to go down all that much.

    If we’re in favor of smaller government, we can’t just take away the money; we have to actually find a way to dismantle government programs and institutions. Anything less sounds like pandering and half-measures. If you think big government is so terrible, you’ll need a better game plan than “lower taxes!” At least, you’ll need something more than that.

    Everyone can get behind “lower taxes”. Who doesn’t like spending less money? But that isn’t a domestic agenda by itself. You can appease the “masses” by writing loopholes into tax codes so they can “get away with” paying lower taxes, and still find other ways of getting revenue (like borrowing, for starters). I think our current president has made it clear he doesn’t really give a fig about the future of this country; lowering taxes and borrowing billions is a fine example of that, indeed.

  187. “So what I’m hearing, DS, is that it’s a red herring to discuss the problematic nature of borrowing billions of dollars to pay for the federal budget.”

    It’s a red herring to quibble about how to fund massive government spending while ignoring the root cause: a government that is way too big. Taxes, borrowing, printing fiat currency are all horrible methods of funding leviathan. There is nothing preferable about any of them.

    You make it sound like taxes don’t have any effect on “the children” of tomorrow. They most certainly do. Taxes reduce the saving and investment that would be the foundation of the economic opportunites of the future. Borrowing and creating inflation by printing money have the same effect. All REAL economic growth is based on capital formation, ie private savings. Every dollar paid in taxes is a dollar less in capital formation.

    Arguing about which method is better is a Republicrat conversation. Libertarians should be talking about root causes, not symptoms.

    There is no magic bullet for funding run-away government spending. ALL methods of funding a bloated, corrupt government do damage now AND in the future. Not realizing this just plays into the shell game meant to divert attention from the real issue.

  188. It sounds like we’re mostly in agreement on this issue. I agree that talking about “symptoms” doesn’t attack the larger issue, absolutely.
    So how do we reduce government bloating?

  189. I’ve read the article and the comments as far as I could without my mind become entirely numb and my eyes glazing over. It seems to have escaped everyone’s notice that lowering the capital gains tax rate resulted in INCREASED revenue from that tax. In the recent televised debate, Charles Gibson asked Mr. Obama why he wanted to raise the capital gains rate if it would reduce revenue and Obama replied, “It’s a question of fairness.”

    In other words, no matter how destructive increasing a given tax might be, it’s OK as long as fairness is the issue. I simply don’t understand how this idea could be fobbed off as being libertarian.

  190. lets see…revenues went down when the rate was raised, revenues went up when the rate was cut, but the opposite SHOULD have happened, therefore those rascally taxpayers just keep getting it wrong. Why don’t they listen when us intellectuals tell them what to do. I guess the same thing is wrong with those taxpayers as is wrong with Kansas…oh well…

  191. Like all taxes, capital gains taxes are a burden. But given that the federal government spends nearly $3 trillion a year, taxes are a regrettable necessity [sic].

    Steve Chapman must be Reason Magazine’s foremost expert in the use of circular thinking…

  192. A bit ‘unreasonable’ of this article to seem to presuppose that everything we do, or that we, ourselves, exist -first- to support the government. Then again, I haven’t been soiled by 40 years of pragmatism. I swear I bookmarked this site because it tends to follow the rare free market / free thinking (read: small government / small religion )combination of things.

  193. Long term capital gains should be taxed at a lower rate to reflect inflation adjusted gains. Short term gains are already taxed at ordinary income rates. If you hold a stock for ten years and gain 10%, where’s the real gain over time and inflation? Taxes should be on real profit not nominal gain. Perhaps the gains should be taxed at lower rates depending on years held, but this only adds more complexity. Corporate gains are taxed, left over gains as dividends are taxed at a lower rate (which probably should be higher, if corporate rates were lower). Capital gains are a form of corporate gain which also is a left over, hence taxed before. But again, long term gains only receive the favorable treatment. Also, lowest income range is taxed at only 5%–a rate Obama will increase as well. Even IRA and 401Ks will probably be devalued by higher taxes on these instruments–even if when you take your gains they are taxed at ordinary rates (likely lower in retirement anyway).

  194. There are other related issues. Reported income increases when tax rates are lower–thus creating illusion of growing income disparity. Want less income disparity, raise rates. less reported revenue. (possibly more fraud as well). Income disparity may have much to do with Boomers hitting peak income years before retirement, trying to gather cash for retirement, selling off riskier investments at lower capital gains rates. Who knows? But to assume that the system is static and that sane people will not alter behavior to avoid paying higher rates of taxes –whether by avoidance or just by working less or donating appreciated assets, whatever, is naive. Academic economists, no doubt, like the idea that higher tax rates (income, estate, cap gains) encourage donations to universities (whose endowments grow with increasing disparity between Yale and Cow Tech).

  195. John Rawls–beloved social philosopher of leftish law schools–argued that those who have higher incomes because of natural endowments should be allowed to keep only as much as keeps them producing–if the excess goes to the least talented/lowest income folk. R Reich often echoes this article of faith. Obama seems to be recalling a vulgar version of this in his second book when speaking of redressing the accidental disparities of income caused by globalization (talent, work, or luck). Be assured, Obama’s desire for votes has changed the tune. Now 5% of us will be subsidizing not the least/neediest but the 95% (who vote). WHy a 26 year old lawyer making $160K deserves to be subsidized by a 56 year old lawyer making $350K is not something Rawls would understand.

  196. Was it Reich, or one of Clinton’s other toadies, who has pushed for a “maximum wage”?

    Talk about dangerous ideas…

  197. Taxes a reasonable necessity? Not a very libertarian stance.

  198. Maximum wage?
    Yikes.
    I’m a socialist; I get redistribution and progressive tax policies. But that… that is beyond me. This isn’t Bolivia, nor will it ever be. It’s okay if people make more money than the President (though that may not be the case in Bolivia, yet), just like it’s now OK to build structures that are taller than cathedral spires (you can still see the legacy of this in DC, though).

  199. Phil B – are you talking state or federal taxes? Clearly, the article is talking about federal, but I’ve noticed that my three avowedly Libertarian friends all feel differently about this issue: one thinks that it’s about focusing on states’ rights and limiting the Fed, another thinks minimal gov’t is best, and the third is just a Boys From Brazil-style clone of Milton Friedman.
    I fall into that states’ rights camp, myself, at least where I see eye-to-eye with Libertarians.

  200. How does something like this get posted on an ostensibly libertarian website? Let’s be honest folks, Reason is about as libertarian as your average drug addicted porn star. If social liberalism for you trumps things like private property and free markets, you ain’t no libertarian. You’re a liberal trying to co-opt libertarianism for your own purposes, as this article displays ably.

  201. The SNL skit that sums up this whole primary season
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  202. Well I don’t know the truth about all the economic theory. However, to me it only seems fair that all income (no matter the source) be taxed at the same rate. This way people will do whatever is in their best interest instead of trying to figure ways to cheat taxes.
    For example, people buy houses they can’t afford, for the mortgage write off. Which by the way, doesn’t last for 30 years.

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