

Debunking the claim that higher income-tax rates reduce GDP - darshan
http://www.slate.com/id/2245781/

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JeffL
I hate how they equate progressive taxation with justice. It only works if you
think justice is when people get equal outcomes regardless of if they deserve
it or not. It would be unjust to penalize Warren Buffet and the other titans
that drive our economy with 91% marginal tax rates. They don't deserve that
kind of treatment, and frankly, I trust them to do much better good with their
excess cash than the government ever would.

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forinti
Shouldn't he at least pay as much as average joe? He himself conceded that his
secretary pays a higher percentage of her income in taxes than he does.

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jbellis
> He himself conceded that his secretary pays a higher percentage of her
> income in taxes than he does

Buffet is himself a redistributionist, and was comparing his capital gains tax
rate (where essentially all his "income" comes from) with the earned-income
tax rate his secretary pays. In other words, Buffet was indulging in a bit of
FUD, to be blunt.

Many economists believe that taxing capital gains lower than income is a Good
Thing to encourage investment and savings, even if it results in strange
outcomes like Buffet's in edge cases.

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dantheman
Remember when dealing with capital gains you are risking money whereas with
normal income you are not. So any taxes on capital gains need to factor in
that when you lose, you loose 100% and when you when you only get the return -
taxes. If the taxes are too high then the amount of risk/reward becomes lower.

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lsc
This is untrue. If you are a small business owner, your earnings are taxed as
salary, even though you take as much risk as any venture capitalist.

This is true until you sell your company; at that point the proceeds of the
sale are taxed as capital gains. Personally, I think this rewards short-term
planning over long-term planning. It's also essentially a subsidy on publicly
traded companies that us little guys don't get.

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dantheman
It depends on the type of small business -- how it is incorporated. And yes I
agree small businesses have it hard because of regulations and taxation, but
I'm in favor of lowering all taxes.

But to claim that capital gains are the same as income is incredibly
misleading. In the special case where you are a small business owner that
works at the business then yes you are taxed as an employee. The money you
invested will be recouped just as venture capital would -- when the company is
sold or by paying dividends.

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lsc
dividends don't help us, as to pay out dividends, I first have to pay
corporate tax, which is usually lower than personal tax, but in California, I
think, not lower than personal tax plus capital gains which I would have to
pay on the dividends.

Sure, I recoup all the money I put in as well as my 'sweat equity' when I
sell, and I pay the low capital gains tax rate on that, but like I said, this
encourages short-term thinking. Hell, I could happily run my company for
another 10 or 20 years. But the capital gains taxes being so much lower than
the income tax I pay on money I take out without selling that it might make
sense for me to sell out once I'm not doubling twice a year. It's sad, I
think, as I think I'd be happier running the company, and the company would
probably be better off with someone with a long-term view running it.

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mseebach
One obvious issue with this argument: The claim that higher tax rates can
reduce GDP is from Arthur Laffer and his Laffer curve -- and relates to the
total tax burden, and not the marginal rate.

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mattheww
One obvious issue with the Laffer curve: Nobody actually knows where the peak
is.

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mseebach
No, but that doesn't mean it isn't there.

Most social sciences (including economics) can't very well be exact for the
lack of experiments, much less controlled experiments.

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mattheww
If you don't know where the peak is, you can't argue that raising taxes will
reduce GDP because you don't know if you're going up the hill or down it.

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mseebach
And that's fine, because that's not the purpose. The purpose is to argue that
the relationship isn't linear (as might be intuitively expected), but curved
(I don't know what the shape is called).

It's impossible to accurately model the economy of a society, but theories
like this can help politicians better judge the impact of their policies.

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xmstr
Nothing like debunking a political debate by writing an op-ed favoring your
side of the argument.

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barrkel
GDP growth in the US in particular can be misleading, owing to population
growth. Growth in GDP per capita may be better.

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gyardley
Considering the pace of chance in the last forty years, comparing the 1960s
and 1970s to today doesn't seem like sound methodology. I suspect, for
example, that it's now considerably easier to vote with your feet.

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three14
I read somewhere _[citation needed]_ that the reason that you don't see a real
correlation is that the rich effectively tend to pay somewhere around a 40%
tax rate. As tax rates go up, it starts to pay to look for tax shelters, and
get non-taxable benefits from their company, and so on, and by the time all is
said and done, they won't pay more with the higher rate.

If true, raising the tax rate won't get any more money for the government,
although it might be good PR for the rich and good income for their
accountants.

