Over at Medium: The Importance of Taxing Capital

By James Kwak

“At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation.”

That’s Larry Summers — with whom I have often disagreed in the past — at a Brookings event on the tradeoff between equality and efficiency. For most of our lives, government policy in the United States and most of the developed world has been focused (at least in theory) on efficiency: colloquially speaking, making the pie bigger rather than worrying about how the pie is divided up. Rising tide, boats, you know the rest: Laffer Curve, unleashing the job creators, and so on. Inequality is something we profess to regret while doing nothing about it.

Read more at Medium.

19 responses to “Over at Medium: The Importance of Taxing Capital

  1. I beg to disagree. It’s not the capital that gets taxed. Just the income or the profit derived from the capital. You may refer to Chapter III Section 24 Paragraph A of Republic Act No. 8424 Philippine National Internal Revenue Code of 1997. You may refer to this url page: http://www.lawphil.net/statutes/repacts/ra1997/ra_8424_1997.html

  2. Addendum: R.A. 8424 Chapter IV Section 27 Paragraph A Rate of Income Tax on Domestic Corporations is 32% effective Jan. 1, 2000. Section 28 Paragraph A Chapter IV Income Tax on Resident Foreign Corporations is also 32% effective Jan. 1, 2000. Section 27 Paragraph D [2] (2) Capital Gains from the Sale of Shares of Stock Not Traded in the Stock Exchange. – A final tax at the rates prescribed below shall be imposed on net capital gains realized during the taxable year from the sale, exchange or other disposition of shares of stock in a domestic corporation except shares sold or disposed of through the stock exchange:

    Not over P100,000……………………. 5%

    Amount in excess of P100,000….. 10%

    [5] Capital Gains Tax Realized from the Sale, Exchange or Disposition of Lands and/or Buildings is subject to final income tax of 6% imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price of fair market value as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands and/or buildings.

    In the United States of America, individuals and corporations pay U.S. federal “income” tax on the net total of all their capital gains just as they do on other sorts of income. en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

    You may also refer to Taxes on Income and Capital Gains for 2015 page url: http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

    Take note of the key words tax on “income” and “gain”.

  3. OK – the title should have been THE IMPORTANCE OF TAXING CAPITAL income. Other than this silly legalesse – this was a wonderful policy insight.

  4. Efficiency in production is directly related to how long and problem free the product is, anything less is not only misleading but shows the inability of people to make a solid product. People know how to design and make a house, but they don’t know how a house should be designed and made in order to not become a burden to the home owner, the same can be proved about cars and just about any product in the house people make today. We concentrate to much on mileage and efficiency and not enough on durability.

  5. What are you trying to do?

    If the objective is to make everyone’s economic power more equal, irrespective of what individuals want to do with it, you have to tax all gains at a progressive rate irrespective of how gains are made. You should also stop tax-deductible charity, because why should one person decide that some cause is more worthy than another. That’s a more socialist society. I think it’ll be a hard sell politically and people will claim, mostly wrongly, that it’ll dampen growth.

    Are you in fact trying to equalise the amount of money that people spend on themselves, on things like food, shoes, or yachts, for humanist moral reasons? In that case require wealthy people to separate their personal income from their wealth and incorporate their wealth in funds. Don’t tax capital appreciation of the fund and allow the owners to run it actively, but tax heavily the salary or other income that the beneficiaries take out to spend. That’ll equalize consumption while allowing people who have banked success (rich people) to fund space projects, startups, etc. I think that’ll be politically palatable to rich and poor alike. You’re changing the definition of wealth from “consume luxuries” to “decide the allocation of capital”. I suspect if you ask Silicon Valley billionaires, they’ll be OK with that. Heirs to wealth maybe less so,

    If you’re trying to stimulate the economy, as in make the pie bigger without much concern about distributional outcomes, you need a money pump that spends money on things that have positive externalities. A money pump can be tax & spend, monetary expansion, risky investments, or anything else that recycles surplus. It has to make a financial loss – If it’s profitable, it doesn’t need help. Good targets for spending are jobs that make people happier like art, investments that make people greater like education, and consumption that makes the planet more beautiful like green energy. Surplus recycling is a positive economic externality, and and you want to find the positive material externalities to go with it rather than the negative.

    So let’s make the debate on inequality more subtle: What vision of reducing inequality should we pursue?

  6. @Pavlos – “What vision of reducing inequality should we pursue?”

    Right up there as a schtick with having a subtle discussion titled, “what is torture?”…

    How about starting with examining HOW this astronomical “inequality” was accumulated – predatory practices, so many “guilty” admissions for their “disruptive” business models, a tax policy for labor that SKINS THEM ALIVE….need I go on….?

  7. @Annie I think you’re saying Option 1: progressive taxation on everything and make it inescapable. OK. Good idea, it may be politically too hard today. You may say inequality is evidently bad. Many people, especially in the US would ask “why?”. Then you may argue that all concentrated wealth is won through means that are arbitrary at best violent at worst. Also true, but not an easy argument to have.

    If we say let’s take the first step, let’s tax for equality of consumption leaving capital investments aside, this idea may be much easier to support and gain traction surprisingly quickly. You can then come back later and say OK how about more equality of capital wealth, shall we have a sovereign fund owned by all citizens? Or how about blocking the influence of capital on politics?

    Inequality means many things. It’s unequal power to consume, the privilege feel secure, to allocate resources, and to influence the commons. If you challenge each of these aspects in turn you may be a lot more successful than all at once.

  8. @Pavlos – I am saying that there was an unequal application of “rule of law” applied by “capital” against “labor”.

    Highest principle of humanity – yes. the BIG PICTURE – is that every human being has the RIGHT to make their lives less miserable through HONEST WORK. Meaning, whatever talents I was born with belong to me and me alone and I cannot be hindered from making my life better by using those talents. This is a TRUTH that humanity has EARNED through experience and has been called many things by “governments” by and for the people, the USA version was simply “Rule of Law”.

    The ONLY role of government is to protect the INDIVIDUAL against force and fraud.

    Is there ANYTHING about the financial instrumentation launched in virtual reality lalaland, that which has created this current level of “inequality, acknowledging the “rule of law” that will forever be TRUE about what human life is, materially speaking??!!

    No, there is not. It has been about LEGALIZING, and worse, glorifying “violent” means of wealth acquirement – this astronomical “inequality” between “capital” and “labor”. Fiat money and that kind of “capital” was to be a SERVICE economy FOR LABOR – protecting MY RIGHT to make my life less miserable through HONEST WORK – intellect, health, talent – applied to life maintenance and the happiness that comes form moral and ethical LIVING (no freakin’ “isms”!)

    There will always be a difference – not “inequality, per se – between people when it comes to talent and work ethic. But that “inequality” will NEVER be as wide as the current “inequality” is – 480 people being worth 2.08 TRILLION!

    JUST WAR.

    I do not appreciate my horse being scared by religious authority and rogue CIA hooligans so that my horse throws me to the ground, and while I struggled to fill my lungs with the air that was knocked out of me, the black boot of censorship steps on my throat! Then the secret machinations by secret cabals in the IRS, banks and ADP (payroll check printers) commit economic genocide against me! Fck U and the horse you rode in on.

    At least there has been an arrest made in the “flash crash” case – someone believed me – hopefully more to come.

    I DESERVE claw back. And there you have it – again – there is no “rule of law” that can give me back the HONEST fruits of my labor. My life should NOT be this miserable after 40 years of honest work – people should not be homeless after paying over 250K in taxes during their life to a “government” by and for the people. Is that “capitalism”????!!!! What the h’ll is this, other than violent economic genocide – REVENGE for their machinations being shut down in EU before this much damage could be inflicted by the “chosen ones” at the beginning of the 20th century??

  9. Anonymouse

    Misery is derived from within Annie, and added to from behaviors over time. If I jump in my youth and my parachute doesn’t fully open and I bounce off the Earth yet survive, I have had a senior moment, if this behavior persists one finds themselves reaching their true senior moment early and more painfully. Now one needs more and stronger meds to combat the constant pain which itself has nasty side effects when the dose is not high enough to overcome the pain. All the while a cost is applied and a formula for unsustainability used to profile the individual down the ladder of life, no matter the reason. Convenience and recreation are not worth the cost of bankruptcy, but most people don’t see the serious side of life because we are not taught in that way, perhaps we should be.

  10. If misery is derived from within, Anonycrazy, then why did you waste 81 million for a secret torture program during the Bush Cabal siege – giving that TAX PAYER $$$$ to an atheist Zionist and a Mormon to develop?

    Why be so relentlessly PREDATORY when all our misery comes from within….?

  11. It took a month or so of careful planning by a husband to throw a surprise birthday party for his beloved wife of 30 years – these plans were made, “in secret” over the phone and in person with other friends and family – over a slice of pie or a coffee….seemingly normal situations as the stage for the plotting of a surprise birthday party…

    So how, exactly, did the atheist and Mormon meet, where did they concoct the torture program – over a game of golf, or maybe in some secret shaman “church” wearing pointed hats and listening for the channeled messages of the Iniquitous One…?

    And how did the “loyal” admin actor in the play put that meeting on their calendars – google or Microsoft? And who did they meet with at DoD who could cut the check for 81 million?

    Seems like there was a lot of “inner misery” in those two architects of thr torture program, no?

    Heck, not what I was up to on the same day that they signed their own fate – their PERMANENT elimination from “eternity”….but they sure are in the book that documents their bazillionth re-write of human progress and history…”after the fake moon landing ,we took control of humanity returning to the age old tactic of torture….”

  12. Anonymouse

    We’ll study on that one, I think the answers to your questions are arriving shortly, did the two do more than kiss in the backyard of their neighborhood I wonder.

  13. Judging by rampant and uncontrolled population growth around the globe, we all know what people have been doing in those neighborhoods….

  14. Anonymouse

    Kids having kids, and liking it. But now the inner qualitative aspects have SHown themselves for what they truly are, the transfer of bad blood with supposed good intentions leading to the doctor visit no one can, or wants, to afford.

  15. FAILURE of the “global economy” being capable of producing anything remotely human as a global culture – psychobabble on, you merciless cretin…

  16. Anonymouse

    Count and enjoy the days, they are numbered.

  17. Religionists of authority have become nothing more than fortune-telling CLOWNS – there IS no future for humanity when psychotic predators are the leadership of the “bad blood” gene pool….so all you got is a self-fulfilling “prophecy” of hysteria and cosmic insanity – POWER over others through soul death?

    Destroying the Middle Class in USA was ECONOMIC GENOCIDE of the best gene pool – FACT.

    Indeed – YOUR days are numbered.

  18. Anonymouse

    It would appear you don’t have gvt default insurance, are the ones you want clawbacks from not good enough to default, or let me guess, you don’t know what that is either.