Why Do Investors Pay Lower Taxes Than Workers?

By James Kwak

I don’t know, but we do it anyway. Yesterday’s Atlantic column discusses the arguments for and against.

Of course, the last word on our capital gains tax policy comes from Peter Steiner.

22 thoughts on “Why Do Investors Pay Lower Taxes Than Workers?”

  1. The way we frame the question precludes any serious evaluation of justice in the process of tribute or contribute to social continuity and its capital formation.

    Percentages are deceptive and should never be taken at their “facebook” value. Once you get past a billion dollars, what precisely are we speaking about in terms of leverage on the country and the entire global ecological balance. the bar keeps getting set higher and higher out of the inadvisable hand of self service. It is a matter of scale versus scope. A 1% increase in salary always looks very incrementally small unless of course you are making minimum wage; or perhaps 40 billion? Is it really a travesty to ask for some return of even 30 billion of that number…which derived from a common wealth market-metric capital share? Is it really too much to leave the poor sap with just a miserly 10 billion? Just when does a single individual born to this planet of dependency seem to actually earn 40 billion on their own, when so many people so much more deserving were left to the concession of having done great work; but are less valued because they did not ask for more than they deserve? Where do you draw the line? Why does the sacred systemic of profit over all value hold more power over the common good simply with a repetitive proof by adamant assertion…???

    Are we all that Stupid?

    Perhaps the system is antiquated and still based on trying to get the aristocracy to relinquish absolute power. Perhaps we simply haven’t got the bugs out of the system. But perhaps it really comes down to the fact that we are infested with pathological parasites who will never have enough and will steal a blanket from a blind man…just to relish their own gains.

    Time Has Come Today(long version)
    “The Chambers Brothers”

  2. @ Bruce: And they prove it over and over again, of course they have until 2014 to separate the men from the boys on your account, but I may up the anti some before then.

  3. Then there is the argument that we should favor risk-taking by letting people keep more of their investment gains….

    One man sells his company, then he uses the proceeds to buy a nice home and live off investment income. He is taxed at a blended rate of 18% after selling the occasional short-term holding. If he hadn’t made quite so much money he could have deducted the interest on his mortgage.

    His brother climbs utility poles in good weather and bad, lives in an apartment and is taxed at a blended rate of around 27%.

    Who is taking more risk?

  4. And a counter-argument.

    It is argued that taxing the rich is just having them give back what they have gained from a stable society that nurtured and protected their property as they built it. OK, but what about the argument that Zuckerberg (and his colleagues) built something that our society desperately wants, that the money he receives for it is actually society giving back to *him* and that he should be able to keep 85% what has been given to him freely for what he built?

    0% capital gains, and 100% inheritance tax?

  5. @Paul – facebook is *fragile* – everyone can stop using it tomorrow, and probably will because it is NOT what *we* want – we don’t *want* it more than clean water, NORMAL roads and bridges, beautiful architecture that promotes FAMILY privacy and security to develop, health care, schools and REAL protection from financial terrorism inflicted by predators.

    Got it?

  6. not sure we do it that way. its not like some one will turn down a 10 billion dollar return on investment because thy might pay more taxes (after all with that sort of money one can figure out how to take advantage of all sorts of tax breaks). and besides if you are richer with the money (no matter what the taxes are) why would you skip it?
    in a way we are arguing that we need to give investors a tax break for doing nothing? and we expect then to do more? why? they increased their earning doing nothing more than they did the year before?
    and many thing taxes are the big reason jobs are not created.
    wrong
    business are in business for a profit. nothing else. if they have enough demand to hire more they will. changing their tax rate will not make them hire more. no will pay their employees more. nor is it likely that the owners of the business (who got the increased tax benefit) will spend more to increase demand at all

  7. @Annie – I get it. That’s why we spend trillions on roads, health care, education, hemp clothing and instruction in yoga and self esteem; and only billions on Facebook.

  8. @Paul – I could be wrong, but is there a pout about spending trillions on real life maintenance? What should trillions be spent on? Billions for facebook is a sick joke…imo. It’s SOFTWARE code…

  9. Its a good thing we don’t need a quadrillion dollars worth of responsibly. You won’t find it in the usA, not in New York City, not in West LA.

  10. Not only do investors pay a lower rate, so do gamblers. The stock market is not investment; buying from another gambler does not put money to work. Venture capitalists are investors. Those who buy equity on exchanges are simply gamblers in a casino that has (at least until recently) had a positive expected value of return (unlike a Las Vegas casino). I see no societal benefit at all to gambling (as opposed to investing) and I wonder why gambling gets special tax treatment (for the record, I am both an investor and a gambler, i.e. I own equities bought from other gamblers).

  11. You throw down some interesting concepts there Earl, I just wonder though if the well should run dry by the time I get there, what was the point of it all. The budget bait and switch, the many layers of congressional abuse, and all to pad the pockets of the rich. The alternative was returning to Lincolns day and i’m certain you would not have fared so well then as you can today. Gamble, yes, lose the odds, no.

  12. The short answer is, investors bribed Congress to lower the tax on capital gains and similar revenue. There’s no economic theory behind it, only greed.

  13. I’m reserving full judgement, because this may be part of some greater change, and being in the middle part of a change isn’t always easy. Setting up Blog format is tougher than people imagine sometimes. Twitter is ok, and I think the Facebook links are a pragmatic part of reality. BUt I have to say as one of the loyal (and earliest readers, shortly after the first Moyers appearance) I do not like the newest format. It reminds me of the Wall Street Journal (at least the last time I picked up a hard copy of WSJ) text set-up. The lines only go like 1 and 1/2 inches across horizontally, and my eyeballs feel like their playing the PE exercise where you run back and forth like some frenetic rat touching basketball court lines 4 feet away from each other. I don’t like any text set up where the columns are narrow. I’m middle aged and it kills my eyes, I don’t even want to know what it’s like for an old dude.

    As a side note, A VERY STRONG SUGGESTION from the peanut gallery. I found this site because of Bill Moyers. I am very grateful to Bill Moyers for introducing me to this blog, and grateful to Bill Moyers for being a great journalist in general. Maybe it breaks the “bloggers’ code” to link to a TV site??? I think an exception should be made in this case.
    http://billmoyers.com/

    http://billmoyers.com/segment/bruce-bartlett-on-where-the-right-went-wrong/

    REST IN PEACE WHITNEY HOUSTON

  15. More to the issue / topic:

    http://www.economist.com/node/21542931
    “The argument about the relative merits of the state and the market that preoccupied young Beatrice has been raging ever since. Between 1900 and 1970 the pro-statists had the wind in their sails. Governments started off by weaving social safety nets and ended up by nationalising huge chunks of the economy. Yet between 1970 and 2000 the free-marketeers made a comeback. Ronald Reagan and Margaret Thatcher started a fashion across the West for privatising state-run industries and pruning the welfare state.”

    [and}

    “The era of free-market triumphalism has come to a juddering halt, and the crisis that destroyed Lehman Brothers in 2008 is now engulfing much of the rich world. The weakest countries, such as Greece, have already been plunged into chaos. Even the mighty United States has seen the income of the average worker contract every year for the past three years.”

    read all:
    http://www.economist.com/node/21542931

  18. Or even better described, there seems to be a reward system for irresponsibility. It starts at a very young age, and never finds the right track. Always needing and taking more. On this rather slow news day, its good to pick up some new info rather than just the common status quo pins and needles. Thanks Bruce.

  19. I smell some states rights civil wars a brewin, just proves we were not on the same page here. Unless of course, the seals were meant to be broken.

  20. What I don’t understand is that the arguement put forward is that low tax rates are necessary to encourage private investment (i.e., savings in the form of deferred consumption) yet we are told that one of the reasons for the overproduction of housing was the savings “glut.”
    What is it – Too much savings/investment or too little?
    One response I could anticipate is that it was malinvestment – but my point is HOW MUCH savings/investment should there be? If we can’t even agree on that, than I doubt the question of what is a good investment versus a bad investment can be answered.

  21. I’d tax capital gains as normal income, after first adjusting the gain for inflation. We have computers – this should be doable.

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