[tmoertel]

> The wealthiest people pay a much lower tax rate because their typical form of income (capital gains) is taxed at a much lower rate than other people's (salary)...

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?

[amavect]

Low capital gains tax incentivizes investment and venture capital, so the rich can grow their wealth faster than the poor, while creating a job market. Compare that to spending wealth on luxuries, a money sink that also creates a job market and grows the economy (people have to make the luxuries). 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.

I vaguely remember Adam Smith talking about directing the vanity of the rich towards spending great amounts of money on proper objects in exchange for recognition. 4:00 https://www.youtube.com/watch?v=ejJRhn53X2M

[tmoertel]

> Low capital gains tax incentivizes investment and venture capital, so the rich can grow their wealth faster than the poor, while creating a job market.

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"?

[amavect]

>[and, more importantly, providing goods and services that are beneficial to society as a whole].

I think enshittification, cost externalization, and rent-seeking behavior cancel this out, muddying the connection towards meeting the needs of regular people. For example, we needed cap-and-trade to internalize the costs of acid rain back onto power plants.

>These claims are demonstrably false. Paper assets provide no tangible benefits.

I think my rhetorical bait worked: you seem to agree with incentivizing luxury spending on real goods and services (instead of incentivizing capital gains)? Adam Smith argues to take that vanity and drive it towards public recognition. For example, many universities put the names of rich donors on the opulent buildings they donate to build. That's good! (My college's music building was amazing!)

>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"?

I thought trade doesn't make a zero-sum game? Money supply is a zero-sum game (I think), and I want money sinks to spread the money. We want them to spend their stored money to generate more tangible wealth for all. Luxury goods often push the limits to what can be done, advancing technology and generating wealth while also depleting their money stores. But while investments and venture capital might also advance technology and generate wealth, they continue to concentrate the money supply to the rich. Not good!

[tmoertel]

> I think enshittification, cost externalization, and rent-seeking behavior cancel [general societal benefits] out.

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.

[amavect]

Very interesting perspective. 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.

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, and low capital gains tax further concentrates money to the wealthy (I would need to prove this, and in recent years the distribution of wealth has increased towards the wealthy), then the wealthy gain a greater share of resource allocation next year.

This might not result in problems, as historically the increases in resource production have increased regular people's resource allocation in absolute terms, but I see no necessity in this trend. I might argue that the poor can lose resource allocation in the zero-sum game, but I'd need to prove that (something like, inflation hurts poor people more than the rich? incomplete thoughts). I could also argue that currents trends place financial assets (intangible) above production assets (tangible), slowing the benefit to regular people.

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.

[tmoertel]

First, thanks for continuing this interesting conversation!

> 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.

[mmooss]

I'm not taking a test (feel free to answer yourself) but my view is that it's the same old talking point: Help the wealthy, and the Nth order effects will benefit others. The only thing these policies deliver on reliably is the 1st order effect - helping the wealthy.

(I think that's a good way to analyse any policy - the 1st order effects are the ones you can count on; the Nth order effects are just BS that magically costs nothing, but gets others to go along - 'the people will pay for this stadium for my privately owned franchise (1st order) and it will bring business to the community (2nd order).' That's repeated over and over, and the 2nd order effect is well known to not happen, but it sometimes gets enough votes from those uneducated in the issue.)

I think in the 1980s the Reagan administration called it 'trickle-down economics', such an incredibly revealing name!

[tmoertel]

Okay, but you didn't refute the line of reasoning. You called it "the same old talking point" and then jumped to the conclusion that "the only thing these policies deliver on reliably is the 1st order effect - helping the wealthy." But you didn't show that your claim was true. Or that the claim you were responding to was false.

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?

[mmooss]

You might have overlooked this part: "I'm not taking a test (feel free to answer yourself)".

[tmoertel]

I didn't ignore that part. I interpreted it as your way of saying that you intended to state your opinion without offering supporting argument.

[mmooss]

You misinterpreted it: It meant I (and others) aren't here to take your tests nor are interested in your grades.

[tmoertel]

If that's what you think is happening – tests and grades – when people come to a site whose purpose is to foster thoughtful and substantive discussions, and then on that site they share ideas and invite criticism of them, you might consider whether you're missing something.

[orwin]

> 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?

Not gp, but if the investment is made in either a non-productive asset, or in the secondary market toi buy share in a company that is downsizing/stabilizing their investments (share buyback is very often a good tell), then the wealth does not benefit society in general but either inflate a bubble, or separate the owning class from the working class.

[tmoertel]

> Not gp, but if the investment is made in either a non-productive asset, or in the secondary market toi buy share in a company that is downsizing/stabilizing their investments..., then the wealth does not benefit society in general but either inflate a bubble, or separate the owning class from the working class.

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.)

[orwin]

More than two third of all public investments are on the secondary market, and this do not benefit investments or the 'real' economy. It's this beneficial to society at best 33% of the time (I'm counting MIC in 'benefic for society' only for the sake of the argument to be clear).

While a worker is beneficial to society 100% of the time.

[dwb]

False dichotomy. We should tax the lot of them until they are not wealthy any more.