HomeArticlesTranscending the Partisan Tax Divide: Capital Gains vs. Corporate Taxes


Transcending the Partisan Tax Divide: Capital Gains vs. Corporate Taxes — 6 Comments

  1. Hello, I enjoyed your article very much. I will now read it a few more times so I can explain it well to others. I had these questions for some time, as my daughter is trying to decide a college major and she is asking a lot of questions on economics. Can you suggest a website she can look at to understand basic principles of economics to get an idea if she would like to study that? We live in Brazil. (Where 77% of what producing/working Brazilians make goes to the government.) But she will go to college in my home state New Mexico. Thank you for putting this out there.
    Sita Hirano

    • The University of Bridgeport has a program in International Political Economy that is good for international development and banking. Fro straight economics, the Wharton School at the University of Pennsylvania is one of the top, but there are lots of fine schools.

  2. A very interesting article; it caused me to wonder…
    The repeal of Glass-Steagall brought many changes most importantly the opportunity for financial managers to make inordinate profits without risk to themselves. In turn, corporate profits were used to consolidate greater wealth and corral political influence into a tighter and tighter circle of power; much in the way that Karl Marx imagined and predicted over a century ago. In other words, without government regulation and progressive taxation, maturing economies tend to develop and become oligarchies or monopolies that are characterized by large disparities in income, wealth, social class and power. Macro-economic planning and micro-economic thinking are adversely affected resulting in unhealthy boom bust cycles and exploitation. Marx had a surprisingly accurate insight into the psyche of industrial capitalism and political hubris of his time. After the passing of many generations and several world wars, the world is confronted with similar problems. Again, we are forced to confront and transcend a great entanglement that is made up of large disparities of income, wealth, social class and power. Glass-Steagall needs to be reinstated. Too big to fail investment banking has to be dismantled. Vast amounts of corporate profits have to be distributed to shareholders and owners … perhaps taxed in the manner suggested, and reinvested back into the economy.

    • You missed an important distinction between corporate profits and individual income that was the main point of the article. The consolidation of capital was related to lower capital gains taxes, not profits that corporations retained.

      Marx’s main concern was the exploitation of labor, not the moving of corporations to other countries. But he did understand that when there was a surplus of labor, the labor market would drive wages down. Marx’s failure is that he was naive about human nature and, like a child, thought if the government redistributed wealth human beings would become better and happier. Labor unions in free markets were a better check on the power of owners than the social expropriation of the means of production, because government run businesses produce fewer and inferior products and lead to poverty and starvation. As it turns out, people in government posts aren’t checked by market forces that make them please consumers, and they inevitably tend to use their power more selfishly as a result.

  3. Gordon – excellent background discussion on these two important pieces of tax policy and their consequences. I’d like to tackle this from another angle – retirement incentives for millions of American workers. As you notice, the huge majority of Americans have their life savings invested in a 401(k)or IRA account. Let’s call this the Wall Street System of Retirement. These tax-favored vehicles only began in 1974 when Congress passed ERISA – changing the vesting laws that ultimately contributed to the demise of corporate pensions and created the IRA. Soon thereafter in 1980 the 401(k) was born. This set up Wall Street to be the primary gatekeeper of American’s retirement fortunes and became a financial bonanza for Wall street firms. How is this doing for the average American after 35 years? I’ve read that the average 401(k) has between $50K to $72K – not exactly enough to live the good life. I believe, as you say, that lower capital gains taxes have created a climate – pushed by the media and investment community – that have led to an unhealthy approach to retirement planning. Frankly most people shouldn’t be investors depending on other “experts” to manager their money decisions, they should be savers looking for secure and steady growth that is not at risk. Our financial literacy is abominable, and again that ignorance serves the Wall Street systems goals of keeping us dependent.

    • Alan, Incentives are key to any analysis of tax policy, and the 401(k)s and 403(b)s were definitely a bonanza for Wall Street. I’ve updated the article to mention them. It is another example of how the Federal Government has helped to create “the 1 percent” in the name of protecting the retirement of individuals through tax exempt funds. These huge accumulations of investment capital helped to fuel the mergers and acquisitions that replaced Mom and Pop stores with chain stores and moved much industrial production operations to other countries.

      Ironically, many of these investors were government employees at all levels, and Wall Street prospered immensely from government pension plans. They want to keep the capital gains taxes down for those pensioners as well as the large Wall Street investors, and would rather tax corporations. But, as my article argues, there is the rub.

      One can argue convincingly that Federal laws related to both capital gains taxes and pension plans, combined with high corporate tax rates are, in fact, the primary reason for the disappearance of the middle class and the gap between the rich and the poor. Not all laws were passed with that intention of course, but when passed incrementally without much knowledge of economic incentives or the system as a whole, that is the result.

      And, you are right about investors. If you have the understanding of human nature that our Founders were so well aware of, then you know that an investor is no more likely to put your wealth ahead of his own, than a government bureaucrat is to put your job above his. Self-interest is an aspect of human nature that rears its head in finance as well as government and laws must eliminate conflicts of interest in both arenas. People didn’t necessarily want to trust Wall Street, but the laws virtually forced them to.

      Here is a quote from over 200 years ago in the Anti-Federalist papers: “It [The government] will give immense fortunes to the speculators; but it will grind the poor to dust.”

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