Monday, July 30, 2007

Capital and Income Taxes

Alan Blinder wrote a good op-ed on the taxation of carried interest and on the tax treatment of capital income and labor income more broadly. He argues persuasively that the tax code should not treat income derived from Capital and Labor differently. This is one of my pet peeves when it comes to discussing taxes. People on both sides of the aisle focus almost exclusively on marginal tax rates. Democrats especially focus on raising marginal tax rates as a way of getting the rich to pay their "fair share". There is a basic problem with this though, the super rich typically derive a great deal of their income from capital gains. Thus raising marginal tax rates may or may not enhance progressivity much at all. It will raise the amount the upper middle class pays surely, but it won't get much of Warren Buffet's money.

Here's Greg Mankiw on the Taxation of Carried Interest. Here's Mark Thoma on Blinder. Here's Tyler Cowen offering his usual contrarian take.

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