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Last week Professor Landsburg discussed why it makes sense to eliminate taxes on capital gains. The reason is that any tax on capital is, in fact, a disguised tax on labor. The “problem” is that it (capital gains taxes) end up taxing labor differently in different time periods. I suspect that is a feature not a bug for many big government supporters.

I want to make two additional points regarding capital gains taxes. One is my thought, the second is a reiteration of something Larry White mentioned in last week’s EconTalk podcast with Russ Roberts.

  1. Would it not be too snarky of me to argue that the entire debate about whether reducing capital gains taxes would be unfair to wage earners and serve to increase income inequality would be irrelevant if we eliminated all taxes? It seems odd to me for some folks to argue so passionately about how unfair it would be to reduce taxes on capital gains and leave taxes on labor and other items when the problem being debated is a result of the thirst for taxation in the first place. I know I am living in la la land, but seriously folks – arguing that middle and low income workers are somehow hurt by lowering taxes on people who rely on income from capital is like complaining that your neighbor stopped receiving random beatings from strangers while you still continue to endure them. Surely that outcome is better than one where you both endure random beatings? And aren’t the beatings the problem in the first place?
  2. An overlooked (in fact, before Larry White mentioned it I had yet to hear anyone talk about it in public) problem with capital gains taxes is that they (in addition to legal and forced tender laws and the government monopoly on paper currency) distort the choices of consumers in terms of how they would like to hold their liquid savings and money balances. Right now, if you wish to hold your money balances in cash and bank deposits, if by some miracle the value of those holdings increases you are not taxed on those gains (however, if those things lose value, you also do not get to write off those losses). Compare that to someone that wished to write contracts specifying payment in specie. If you hold some portion of your money balances in gold or silver, and their price increases over the time you hold them (even if you are holding it to settle transactions), then you are forced to pay capital gains taxes on those holdings. This gives yet another advantage to government money over non-government money and would seem to me, yet again, to be another way government involves itself in your life without being so transparent about it.

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