Capital Gains

Last night David Brooks in all his ridiculous idiocy stated that Obama raising the cap gains tax to 30% would be a disaster because there is much more sensitivity to tax rates in investment than there is in labor. Also yesterday, Atrios commented on Romney's comment on being unemployed. Then clarified a bit.

First off, David Brooks is a moron. Second, I may be misunderstanding something in the tax code, but from what I can tell, if someone has a giant pile of cash, and they invest it and get a 10% rate of return, then after cap gains that goes down to an 8.5% ROI. If capital gains goes up to 30% then it goes down to 7% ROI. But if, in response to higher taxes, that rich person stops investing then their ROI goes to...0%.

Now, zero is worse than 7% by a lot, so people with giant piles of cash are not going to react to higher cap gains taxes by reducing or eliminating their investments. They will bitch, to be sure, but otherwise...they may invest more aggressively to offset the difference. They may not change at all, but lobby congress harder. They may be less willing to take certain risk because the potential rewards have been reduced, and this is, I think, what effect low cap gains rate defenders are talking about.

But this effect is highly uncertain. If some hold off, but others become more aggressive to offset, then the net effect could be anything: more, less, or the same level (and distribution) of investment.

And the other complaint: that the rich worked and earned and now they are being taxed again is bullshit for two reasons. One - they aren't being taxed again, the new income that they get from their wealth is being taxed. Two - many of these wealthy people didn't work and earn their wealth. Some inherited it, most--no matter how capable and hard working--were simply lucky in one way or another (hard work and ingenuity are no match for luck if you seek to get rich). For every Jobs or Gates there are plenty of people every bit as smart and driven, who simply had bad timing or that were born to the wrong people or in the wrong place...and to anyone who says that those people should overcome: fuck you, you callous, thoughtless, heartless, inhuman jerk.

Capital Gains are income and should be taxed as such. The arguments for treating them differently are real, but go both ways. Because of the risk and loss that occurs, taxing them more heavily may dissuade some investment, but because the owner of the giant pile of cash doesn't actually work in any real sense, the gains could just as easily be taxed more heavily. So in the end, I say treat as income. People who have cap gains as their primary income source but who aren't multi-millionaires will be taxed less heavily since their gains will be smaller, and the Romney's of the US will pay the full tax for their income.