On the economics of taxation

Guess which retired accountant needs to read up a little bit more on the economics of taxation?

Capital is an accumulation of property rights based on these and is not in itself wealth generating

That is why it should be taxed more heavily

The general consensus among economists is that returns to capital should be taxed more lightly than other sources of income precisely because the employment of capital is wealth generating.

And no, this isn\’t some neo-liberal baby eater consensus. It\’s how the achingly socially democratic Nordics operate for example. It\’s even the received wisdom at the OECD.

6 thoughts on “On the economics of taxation”

  1. Capital Gains, damnable.

    If you “gain” capital from selling shares, surely someone else, who has just bought them, has handed over capital? Net capital “gain” is zero.

    CGT, is, lets be frank, a from of Stamp Duty. It is a tax “because we can”.

    Taxes that discourage legal investment for return, also known as – cover your ears, Socialists – success, should be abolished.

  2. Brian, follower of Deornoth

    Eating lunch should be taxed more heavily because it isn’t wealth-creating.

  3. Unusually for me, I agree with Rog.

    Apart from that, I fail to understand why people obsess about ‘capital’. To generate wealth, businesses need skills, labour and finance etc. Some finance and labour is converted to fixed assets and some into stock in trade; some labour and skills creates intangible assets (like goodwill) and so on and so forth.

    The profits then have to be divvied up between people who ‘invested’ 40 hours a week (but have no money); people who ‘invested’ a brilliant (or possibly bloody awful) idea for a business; and people who ‘invested’ money (enabling business to get off the ground). Quite how the profits should be divvied up is best left to the various parties to agree between themselves (the markets sort all this out).

    Trying to tax one at higher or lower rates than other just messes things up.

  4. I agree with Mark for once in the limited sense that taxing capital is stupid. There’s reams of evidence that it encourages short-termism, reduces investment and jobs, etc.

  5. Mark:

    Whether a matter of obssession or no, capital is extremely important (and, also, extremely poorly understood). People quibble endlessly over the meaning of the word but there’s no mistaking the importance of whatever it is. I would go so far as to say that capitalism and the modern, civilized world and its highly-developed material (and social) amenities are roughly coterminous with “capitalism” ; these would be enormously reduced under any other thinkable mode of organization and could only be improved by modes significantly more “capitalistic” than at present.

    The essential characteristic of capitalism is it depends on actions of individuals who not only don’t consume all their production but save the overage and, alone or in concert with others, dedicate part or all to activites designed to improve present modes, to bring about a better or longer-lasting product, one capable of similar utility requiring less in material or labor (cost) in production, or even an entirely new product whose benefit cannot be entirely predicted in advance of its offering, regardless the sanguine expectations of its investors.

    “Capitalist” saving is not same as associated with accumulation for “a rainy day.” The last is personal consumption, the former essentially entrepreneurial, entailing at-the-moment unquantifiable risk (even as to the full extent of the cost which might be involved).

    No one can describe the essential ruminations in the minds of those engaged in entrepreneurial activities; it is sufficient to observe that, in the absence of their activity, whether large or small, all human progress would cease.

    Because, at any given time, the very best methods that can presently be afforded to do any particular thing are already being employed, it is a routinely observable fact that the great bulk of improvements tend to involve a substantial lengthening of the period absorbed in the new process or the spending of greater amounts in the production of the apparatus involved (than at present), whether or not the time involved is lengthened or not.

    Quite a few people have written entire books on the subject of capital. And, at least one of them (Marx’) has influenced the world mightily–for the worse. It’s a subject worthwehile learning about, though, and one with which most political leaders have only the very slightest acquaintance.

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