Comments URL: https://news.ycombinator.com/item?id=48302997

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I wouldn't advocate for any particular tax rate for capital gains without it being part of comprehensive fiscal and government reform. The point I was trying to get across in my original comment was that, when people talk about raising the capital gains tax because they think it's an obvious way to tax the rich without affecting working people and that the only reason we're not already doing it is because the rich have rigged the system, the reality is way more complicated. There are no easy fixes. Changing the capital gains tax substantially (outside of more widespread reforms) is likely to have unwanted consequences. And even with widespread reforms, we're likely to suffer unwanted consequences.

Reality is way more complex than talking points.

How best to perform construction work and what it will cost for materials, labor, plant and general expenses are matters of vital interest to engineers and contractors. This book is a treatise on the methods and cost of concrete construction. No attempt has been made to present the subject of cement testing which is already covered by Mr. W. Purves Taylor's excellent book, nor to discuss the physical properties of cements and concrete, as they are discussed by Falk and by Sabin, nor to consider reinforced concrete design as do Turneaure and Maurer or Buel and Hill, nor to present a general treatise on cements, mortars and concrete construction like that of Reid or of Taylor and Thompson. On the contrary, the authors have handled the subject of concrete construction solely from the viewpoint of the builder of concrete structures. By doing this they have been able to crowd a great amount of detailed information on methods and costs of concrete construction into a volume of moderate size.

https://www.erlang.org/doc/system/design_principles.html

Well, in a purely capitalist economy, the answer would be property rights, competition, and liability. For example, a road would be owned by someone, and you could sue that someone for damages if the road damaged your car. A road owner could discharge liability risk by purchacing insurance, and insurance underwriters could require some minimum standard of maintenance from owners in exchange.

> You need some kind of government for such things as education, healthcare, roads... fixing potholes...

The whole point of the article that spawned these discussions is that society has already delegated the responsibility for fixing potholes to the government, and the government is doing a crappy enough job of fixing potholes that "art activists" need to make potholes into public art projects to get the government to actually do its job.

> Let me try and repeat it back. Resource allocation is a zero-sum game within any given year, resource production increases yearly as technology increases, technology increases more as capital increases, so a low capital gains tax will increase resource production more than a high capital gains tax.

Actually, this line of reasoning is tangential to the thrust of my argument. Let’s get to it now:

> If I got that right, here's my best shot at a contradiction. If resource allocation is a zero-sum game, money (liquid assets) determines resource allocation, …

Okay, here’s what I think you’re missing. Money does not determine resource allocation. But spending money does! Only by spending money do you get to consume goods and services. Therefore, by getting wealthy people not to spend but to invest almost all of their wealth, we get them to give up their claim on where today’s resources are allocated. They control wealth but not resource allocations.

> … and low capital gains tax further concentrates money to the wealthy, …

I believe that this claim is more or less true.

> … then the wealthy gain a greater share of resource allocation next year.

But this claim does not follow. Wealthy people gain a greater share of the wealth allocation next year, but they do not spend that wealth, nor the new wealth they gain each year. They spend only a tiny fraction of it – and invest the rest. Thus, most of this “extra” wealth that wealthy people gain is invested, with resource allocations from that wealth to be determined by spending across the population in general, not by the wealthy who invested it.

> I claim that if the wealthy were to put their money in luxuries (things that don't give capital gains), they would control more allocation in a given year, but then they would decrease their share of resource allocation the next year. I also claim that resource production would increase just fine, as technology initially benefiting luxury production expands toward general production.

Let’s say that the wealthiest 1% of people control half of all wealth. If we forced them to spend that wealth, much of the economy’s resources would be redirected to provide goods and services to the top 1% of people. For a very long time, the remaining 99% of people, especially the lower 80%, would find it very hard to purchase goods and services, for their spending would be dwarfed. Resource production would increase, but I doubt it would be “just fine.” Factories producing mega-yachts, doctors providing exotic cosmetic surgeries, and master chefs preparing one-of-a-kind meals with luxury ingredients such as hand-massaged beef fed grasses from the richest soils on Earth… These are not easily adapted to produce things that regular people need.

By getting those wealthy people to invest their wealth instead, we get them to give up their ability to dictate where today’s resources go. In exchange, they (as a group) get the promise of earning more wealth tomorrow from their investments.

I agree, however, that concentration of wealth is a problem for society. When a small number of people can, in effect, buy the government with pocket change, that’s not good. But a low tax rate on capital gains is only one contributing factor to the concentration-of-wealth problem.

While I agree that the factors you cited are drags on the economy, I think historical evidence suggests strongly that they do not cancel out net benefit to society in general. The fact that poor people today benefit from refrigeration, air conditioning, electronic computers, vaccinations, safe anesthesia, cancer drugs, dialysis, HDTVs, cell phones, and a host of other things that the wealthiest people of yesteryear could not have purchased with all their wealth, suggests that the net trend of the economy has been to produce benefits for all of society, including regular people.

> you seem to agree with incentivizing luxury spending on real goods and services (instead of incentivizing capital gains)?

No, that is the opposite of my original claim. My claim, put simply, is that a low capital gains tax shifts the economy's output away from luxuries and toward meeting the needs of regular people.

> I thought trade doesn't make a zero-sum game?

But resource allocation is a zero-sum game. In any given year, there are only so many productively employable atoms and human hours. If less of those resources are being used to produce luxuries for wealthy people, they can be employed to produce goods and services for regular people.

You forgot the most important part. Let me add it for you: "Low capital gains tax incentivizes investment..., while creating a job market, [and, more importantly, providing goods and services that are beneficial to society as a whole]."

> The former creates more liquid assets (stock) with no clear connection towards meeting the needs of regular people. The latter creates more solid assets with no clear connection towards meeting the needs of regular people.

These claims are demonstrably false. Paper assets provide no tangible benefits. You cannot eat a stock certificate, nor can you use it to heal an infection, nor can you ask it to repair your refrigerator. To receive a tangible benefit such as these, you must consume a good or service. And what is the economy but a machine that produces the goods and services that the people within it consume? Therefore, it is the mix of goods and services consumed (which equals that produced) that determines how society benefits. And, as you've already admitted, a low capital gains tax incentivizes the wealthy to buy paper assets instead of luxuries for themselves. But luxuries are real goods and services, aren't they? In other words, doesn't that policy incentivize wealthy people to consume less and, therefore, claim a reduced share of economic benefits? Consequently, doesn't an increased share of economic benefits go to "regular people"?

That if is doing a lot of lifting. What percentage of investments do you believe satisfy that if condition? If that percentage is p, then do you agree that it's generally beneficial for society, for approximately 100% − p percent of the time, when wealthy people decide to invest in the economy instead of spend on themselves?

(Further, even when companies downsize, don't they release their resources, such as people and equipment, back to the market? And doesn't the evidence of economic history suggest that, on the whole, the market tends to take up resources, including those released from downsizing companies, and use them produce goods and services that benefit both the owning class and the working class? For example, for most of history, even the wealthiest of the owning class lacked electricity, air conditioning, refrigeration, radio, television, electronic computers, the internet, cell phones, HDTVs, antibiotics, vaccines, generic drugs, medical imaging, DNA testing, video conferences with health care professionals, and so on. Today, don't even working people benefit from these things? So, even when your if condition holds, the claimed consequence, that such investments "either inflate a bubble, or separate the owning class from the working class" seems hard to believe.)

Can you offer a substantive argument that getting the wealthy to invest their wealth instead of spending it on themselves is a policy that benefits only the wealthy and makes life worse for everyone else?

If only there were a system to align incentives toward a common good under the assumption that everyone is corrupt and will therefore seek to maximize their own interests....

A different way to think about this would be to say that a lower tax rate for capital gains is a trick (incentive) to get the wealthiest people to invest their wealth in the market, which provides capital for people trying to grow the economy and provide jobs, rather than spend their wealth on luxuries for themselves. In this way, we have an economy focused more on the needs and wants of regular people, and less on producing what wealthy people want.

Can you spot a flaw in that line of reasoning?

Comments URL: https://news.ycombinator.com/item?id=48110395

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