Theos-Talk Archives (November 1995 Message tl00415)

Regarding the comments below about the "onerous tax of over 28
percent on capital gains" I would like to comment as follows:
1 The total percentage of taxes collected from capital gains is not significant
compared to taxes collected from other sources income tax and corporate tax.
2 Encouraging people with money to invest in stock means that corporations
have a source of funding to invest in factories machine tools computers etc.
3 Factories need workers machine tools need operators computers need
people to program and repair and run them.
4 Therefore money invested in stock issues eventually equals more jobs.
5 Reducing capital gains taxes means that people who invest in stocks
make more money. People allocate their investments in the areas that offer
them the greatest return. If they make more from stocks than bonds real estate
or other asset allocations they will reinvest more money in stocks.
6 Therefore reducing capital gains taxes means that in general people
investing in stocks will tend to reinvest their gains in stocks.
7 See items 02 through 04 again.

Therefore in conclusion I would argue that reducing capital gains taxes tends
to
be an indirect but causal influence on job creation. The best thing for poor
people is more opportunities for jobs.

Therefore in the specific case of capital gains taxation the optimal way
to help the poor is not to tax capital gains and then through an inefficient
bureaucracy which expends a large portion of those taxes on federal salaries
and paperwork pass the remaining funds directly to the poor.

The optimal way is to not tax capital gains and let the result be availability
of jobs.

** NOTE ** - this does not mean that I advocate doing away with the "safety net"
for the poor - just that in this specific example taxing capital gains results
in a net
negative for the poor.

Its like eating your seed corn!

Regards
John