How Felix Salmon ruined my lovely Friday
There I was, enjoying a lovely Washington afternoon — and then I read this from colleague Felix Salmon on the draft report from the Obama deficit panel:
One of the best parts of the chairmen’s plan is the way in which it raises the tax rate on capital gains and dividends so that they’re simply treated as ordinary income. The very wealthy, who often live off capital rather than labor, would definitely be hit hard by that move.
1) Of course, such tax reform would actually raise investment taxes above those on labor income because Obamacare slaps an additional 3.9 percentage point levy on investment income. Does the draft report repeal that? I don’t think so, but if it does I stand corrected.
2) Also, does an annual income of $250,000 qualify as household as “very wealthy? Really? Actually, the Bowles-Simpson reforms would raise capital gains taxes on all brackets.
3) In any event, we need a code than assesses less of a penalty on investment and savings, not more. Instead of scrapping the whole tax code in favor of a consumption tax — which many economists would recommend — why not just eliminate investment taxes? Since all you can do with income is save or spend it, you would get a de facto consumption tax.