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Old 07-15-2011, 02:09 PM
DWAnderson DWAnderson is offline
Join Date: Jan 2007
Posts: 64
Default Re: An Occasion of Sin (Mark Schmitt & Tim Carney)

I actually looked at the comments expecting some substantive discussion of the points in the Diavlog here...

So here goes, I suspect the reason that Tim doesn't want an income tax (and presumably prefers a consumption tax) is that the income tax skews consumption/investment decisions away from what they would be absent taxes, resulting in less happiness for everyone.

This is also the reason why in an ideal world, you would tax capital gains at 0%, because it is mathematically equivalent to exempting investment (i.e. non-consumption expenditures) from the income tax. In other words it would be an attempt to bring the current income tax system closer to a consumption tax.

The problem with working with the income tax in this way is that it tends to breed a bunch of inefficient attempts to game the system, e.g. by turning ordinary income into capital gains that are taxed at a lower rate.

Pure consumption taxes are not without their issues, but they don't start with the disadvantage of trying tax consumption by taxing a income as a proxy for consumption.

Unfortunately, Mark appears unaware of all of this when he blithely asserts that capital gains are taxed at a different rate that ordinary income because the Republican Party is the party of capital. Please.
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