The Ideal Rate

Tuesday, October 18, 2011

The Ideal Rate

"The taxation of capital gains,"
Said a student of John Maynard Keynes,
"Would ideally fall
Between 'nothing at all'
And the rate at which Buffett complains."

Writing in the Wall Street Journal on the "Three Policies That Gave Us the [Steve] Jobs Economy," Amity Shlaes cites the slashing of the capital gains rate from a confiscatory 49% to 25% in 1978. Building on this evidence, she reaches the silly conclusion that "taxes on capital should always be lowered, and dramatically." One might just as easily conclude that, because a diet improved one's physique, that mealtime portions should always be dramatically lowered, too. But what is the correct capital gains rate? Undoubtedly, it lies between encouragement of wild speculation and discouragement of capital formation.

4 comments:

Jonathan LawryOctober 18, 2011 at 9:46 AM
I suppose that the core question is: Should tax policy be used to maximize government revenue and fund a government, or to pursue egalitarian social goals? Put another way: If we could fund our government without taxing the citizenry, should the government still try to address unequal economic outcomes?

I am not an economist, and I have no hard data at the moment with which to debate this point, though it seems that these two goals, while not mutually exclusive, are not entirely without conflict.

From my layman's perspective, it seems that our country has always favored capital over labor to promote saving and investment, tolerated a larger gap between rich and poor if the mean is higher. Indeed, I would rather be poor in Hartford than poor in Mogadishu.

That said, I temper my Rand-ian outlook knowing that even if I think, correctly, that most people fail through faults of their own, I do not want to have to live in a gated community or hire private security to keep them at bay. So if I need to bribe the malcontents a little to reduce their contempt, so be it.
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Dr. GooseOctober 18, 2011 at 8:00 PM
How Bismarckian of you, Mr. Lawry!

My own view is that taxes should be used only to fund the government and not to create incentives for or against anything. The pain should be spread evenly (which does not mean that everyone pays the same rates!), such that people generally don't consider the tax effect of any decisions they have to make; they should be indifferent.
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Jonathan LawryOctober 19, 2011 at 10:02 AM
Hey now! "Bismarckian" is a tad too strong an adjective to describe my position. I only advocate bribery of the malcontents JUST ENOUGH so they stay in Zuccotti Park, and don't hop on the northbound train to my beloved Connecticut. Then again, I suppose good old Otto bribed his malcontents just enough to keep them from leaving Germany for America.

Glad we find common ground. I truly enjoy these Limericks. Thanks.
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Dr. GooseOctober 19, 2011 at 10:19 AM
Well, if you would hop on a southbound train to Manhattan sometime, we could meet for a pint. Click on the e-mail link in my profile, if you're interested.

Cheers!
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