I certainly think that capital investment should be taxed less, but to make it such a huge difference between how we tax 'work' (ordinary income) and how we tax 'investment' (capital gains) creates class distinction.
More accurately, it allows opportunists to create the
illusion of class distinctions.
Most any economist will tell you that corporate taxes, more than any other taxes, have a profound effect on the economy. Your chart confirms that theory as does all the other evidence I have provided.
A change in the capital gains rate creates an change in the incentive structure to invest. This leads to business expansion and the creation of new business, growing the economy and eventually leading to higher capital gains revenue.
The correlation you keep pointing to only
confirms everything I have been saying.
There are also even more indirect effects for other sources of tax revenue that would occur at an even greater rate if corporate taxation were abolished.
In his famous book,
Economics in One Lesson, Henry Hazlitt pointed out:
The are of economics consists in looking not merely at the immediate but at the longer effects of an act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups
Long before him, french economist Frédéric Bastiat talked about what was seen in the economy and what was unseen.
Bad economics focuses on the immediate, direct, seen consequences while failing to notice and consider unseen, indirect and longer term consequences.
Foxy, I think you are practicing bad economics by failing to account for the incentive structures created by taxes and how those effect the market.
More broadly, though, I think most people calling for higher taxation on the rich, whether through corporate taxation or some other means are practicing bad economics.
With regard to corporate taxes, it is worth remembering that corporations don't pay taxes - only people pay taxes. When a tax is levied on a business, it is levied against the business owners. Business owners are not simply the top 1%, but most of the working population because of their retirement investments.
It is those people who, as business owners pay those taxes either directly or indirectly, unless they can shift that tax burden. The truth is that this tax burden is most
always shifted. Typically it results in higher costs for the consumer. Failing that, it falls on lower wages for the worker. In short, they fall on the middle class.
Also keep in mind, the rich have the most means at their disposal to
avoid taxes. These are not illegal means either. They can invest in offshore accounts, have would-be dividends simply reinvested, simply go without income for a time, etc. No laws can change this and politicians, at any rate, wouldn't want to change it. Most of the various "loopholes" were created by the loudest proponents of class warfare as they game the system.
As
this article points out;
[The creation of a corporate tax alongside an income tax] has had two deeply pernicious effects. One, it allowed the very rich to avoid taxes by playing the two systems against each other. When the top personal income tax rate soared to 75% in World War I, for instance, thousands of the rich simply incorporated their holdings in order to pay the much lower corporate tax rate.
There has since been a sort of evolutionary arms race, as tax lawyers and accountants came up with ever new ways to game the system, and Congress endlessly added to the tax code to forbid or regulate the new strategies. The income tax act of 1913 had been 14 pages long. The Revenue Act of 1942 was 208 pages long, 78% of them devoted to closing or defining loopholes. It has only gotten worse.
The other pernicious consequence of the separate corporate and personal income taxes has been a field day for demagogues and the misguided to claim that the rich are not paying their "fair share." Warren Buffett recently claimed that he had paid only $6.9 million in taxes last year. But Berkshire Hathaway, of which Mr. Buffett owns 30%, paid $5.6 billion in corporate income taxes. Were Berkshire Hathaway a Subchapter S corporation and exempt from corporate income taxes, Mr. Buffett's personal tax bill would have been 231 times higher, at $1.6 billion.
Inevitably, higher tax rates, whether it be on capital gains or on income, will eventually fall on the middle class. All a higher tax rate does is to create an incentive for the rich to be more creative in avoiding taxes.
In fact, when tax rates were as high as 70% and even 90%, it was common for people exposed to those higher rates to game the system in their favor. This is reflected in the share of the tax burden they shouldered;
much less then when rates were lowered under Reagan and since then. There was much more shifting of the tax burden when rates were higher then when rates are lower.
In short,
any increase in taxes ultimately falls on the middle class. Bad economics misses this because it fails to look at incentive structures and it fails to consider what is indirect and unseen. Bad economics is basically exceedingly short sighted. But, it can confirm emotional biases rooted in envy.
There is the added consequence that as the rich look to avoid taxes, investment capital drops and, ultimately, the economy suffers, hitting the middle class hardest. Instead of looking to grow their wealth, the rich only look to protect it and this means a stagnant economy and, ultimately, a stagnant class structure. Ironically, the policies called for by class warfare end up creating a static class structure and enshrining the rich and powerful in place while creating barriers for the less well off to move up.
This is why we are seeing the rise of the tea party and the occupy movements. While they promote different fixes and diagnose the problems differently, they both see a very static class structure with the rich and powerful exploiting the system while preventing any real opportunity for those not as well off. The loudest voices promoting this class warfare crap are usually the worst offenders in the exploiting.
Really the difference between the occupy movement and the tea party movement is the difference between
Marxist class theory and
Austrian class theory.
