[nradov]

We want to encourage people with capital to invest it in productive new ventures instead of just hoarding it. This increases economic growth and generally benefits society. Thus we incentivize those investments through the income tax code.

At least that's the economic theory. If we were to raise taxes on dividends, no one can really predict how much that would reduce the long-term economic growth rate.

[Dylan16807]

Wanting to encourage investment is more of an explanation for why the tax rate is lower than 100%. It's not an explanation for why it's lower than income tax.

[nradov]

The level of capital investment people are willing to make is proportional to the expected return, net of taxes. So, you are essentially arguing about the shape of the curve. Would society be better off if dividends were taxed at 10% or 20% or 80%? The reality is that no one really knows because it's impossible to conduct controlled experiments and the system is too complex to model accurately. We're left to make policy choices based on intuition, ideology, and low-quality macroeconomic "science". Anyone who claims that a certain large-scale change in the tax code would definitely produce positive results is simply ignorant or arguing in bad faith; the reality is that we lack the ability to accurately predict second-order effects.

For example, consider the 10% federal luxury tax imposed in 1991 to reduce the budget deficit. It seemed like a good idea at the time, but it devastated several domestic manufacturing industries and destroyed many jobs. Whoops.

[robotresearcher]

Normal interest on savings accounts and short term investment gains are taxed as income. Long term investment income is taxed less than that, biasing in favor of investment.

[Dylan16807]

Savings accounts have poor returns and don't need the help.

Is short-term investment that much less useful than long-term? Especially when the stock market is so big and smooths out short-term investments so much? We're effectively paying a lot of money for that bias, and I'm not convinced that's better than a tiny bias or no bias.

[robotresearcher]

Savings accounts have poor returns, so investments don't need the help, right?

I could certainly be persuaded by that and maybe about short vs long term investment. Do we have data from other markets to compare?

Above I'm just explaining the reasoning behind the status quo. Reaction to that seems negative. I can't tell if I'm wrong about the reasoning, or people are signaling that the reasoning is wrong.

[Eddy_Viscosity2]

Aren't high taxes on income from work a disincentive for people to work? How does the same logic not apply? By looking at the tax incentive structure, it is telling people: sitting on your ass doing nothing and being paid dividends (derived from the work of others) is more important than working a job yourself.

[analognoise]

"We want to encourage people with capital to invest it in productive new ventures instead of just hoarding it."

At this point, I think the system has failed.