Thursday, January 24, 2013

Tax Capital Gains Like Income, Because Sometimes You Want Demand

The standard story on why long-term capital gains taxes are often lower than income taxes is that we want to encourage investment. I'm not really sure why we care so much about this.

Sometimes the problem with the economy is that there isn't enough investment. Other times the problem is that there isn't enough demand. But whatever the problem may be at the time, our policies are set up to encourage investment and discourage consumption at all times.

There are many reasons why very rich people throw more money at financial products than yachts -- one of which is that one can only enjoy so many luxury goods. But I don't see that favorable tax treatment of investment income needs to always be another reason.

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