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Thursday, September 4, 2014
Taxes and Randomness
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Enjoying this podcast quite a bit.
ReplyDeleteThis is good!
ReplyDeleteI think measuring the Laffer curve is a bit more tricky than some of Matt's comments make it out to be. It's particularly tricky with the capital gains tax because investors pay only when they sell an asset, and they often have some flexibility in the timing of the sales. The decrease in the capital gains tax rate in 2003 (originally scheduled to expire in 2008) did correspond to an uptick in capital gains tax returns, but that doesn't necessarily mean a long-term increase in tax revenue. It could be that the policy change caused some investors to make sales at a lower tax rate sooner when they would have otherwise (absent the rate change) made that sale at a higher tax rate later. Here's a snippet from an article on that 2003 law in The CPA Journal:
Past capital gain tax rate cuts have increased revenue to the federal government in the first two calendar years after the cuts, yet lost revenue thereafter. Some observers speculate that the increase in revenue arises from the unlocking effect of taxpayers who wished to sell their assets and invest in an alternative financial vehicle that might yield a greater return. The responsiveness to lower capital gain tax rates declines as taxpayers’ marginal tax rates decline. In addition, according to Congressional Research Service Report of Congress—Economic and Revenue Effects of Permanent and Temporary Capital Gains Tax Cuts, Updated January 29, 2003 (issued February 26, 2003), the amount of tax revenue decreases as the capital gains are taxed at lower rates. Finally, a capital gains tax cut induces stock sales, which causes downward pressure on stock prices in the market.
I think it's good that charitable donations are tax-deductible, but replacing some tax dollars one-for-one with mandatory donations seems a bit odd. I wonder what the impact of that would be. I think that viewing the two things as very similar would be a bit off. Even though the government does some nonprofit-like things, the goals of the government are not interchangeable with the huge variety of goals of the entire space of nonprofit organizations. For example, foreign aid can seem nonprofit-like, and yet I feel the goals of government foreign aid diverge quite a bit from the goals of NGOs like Oxfam or Doctors Without Borders. I'm not sure I'd approve of the government replacing some taxes with mandatory donations (as opposed to just cutting taxes) any more than I'd approve of the government requiring donations on top of existing taxes (even if that was instead of raising taxes).