TAXING CAPITAL….Max Sawicky ripped off his blogging cape today and adopted the guise of mild mannered serious economist in order to hold a debate with Tyler Cowen about the recommendations of the president’s tax reform panel. Very quickly, though, the debate turned to the subject of capital gains taxes ? specifically whether Max was willing to raise his hand and say: “I want to in essence double the real rate of taxation on capital income. I don’t think the growth rate will fall.” Here’s how Tyler put it:
Max, are you willing to raise your hand and say: “I want to in essence double the real rate of taxation on capital income. I don’t think the growth rate will fall”?
Sadly, the results were unedifying. I demand a rematch.
Basically, I’m on Max’s side: I think taxation of capital should be at roughly the same level as taxation of labor income. However, I believe this mostly for reasons of social justice, and it would certainly be handy to have some rigorous economic evidence to back up my noneconomic instincts on this matter. Something juicy and simple for winning lunchtime debates with conservative friends would be best. Unfortunately, Max punts, saying only, “As you know, empirical research seldom settles arguments.”
Tyler then accuses of Max of obscurantism and asserts without evidence that “I am asking you to believe that low rates of capital taxation are good for an economy; this accords with most empirics and with most theory.”
Perhaps so. But on a question this messy I have little faith in theory. I’d like to hear more about those empirics. Max makes the point that U.S. tax rates on capital are higher than in most countries, and yet our economy is one of the best performing in the world. What’s more, we’ve had higher rates in the past, and have had booming economies regardless. These are good points.
And yet, surely there is some serious comparative research on this matter? Perhaps a consensus within the economics profession? Or not? Inquiring minds want to know.
