Thursday, August 30, 2012

About those taxes.......

The problem with Capital gains taxes, is that its not their rates that determine economic activity, It's the anticipated change in their rates. If rates are scheduled to go up, a flurry of selloffs will follow resulting in stocks losing value and more cash (and cash equivalents) being hoarded. If rates are scheduled to go down, then investors will prefer to sit tight on their appreciated assets, and wait for the taxes to drop before they cash in. The resulting distortions are what cause people to claim that lowering taxes cause revenue windfalls. They're one shot deals that don't continue after the new rates are settled in. I personally find it difficult to justify that people who live on their investments are taxed significantly less than people who earn salaries. I'm all for simplifying the tax code but none of the proposals on the table do anything but make the stratifying of our society even worse than it already is.

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