In part 1 of this essay, I fulminated against the unemployed.
In part 2, I shall lambaste people who work for a living.
The other day, I heard congressman Anthony Wiener (hereafter to be referred to as Wiener Wiener, as in Major Major), screaming about how obscene it was to tax “unearned” income at a lower rate than money earned by work. His assumption, and that of many other economic ignoramuses, is that money earned by sweat of the brow has an inherent moral superiority to money earned by clipping coupons.
This is exactly backwards.
Capital gains is money earned on SAVINGS. Saving money takes more discipline and maturity than working for it. It’s no exaggeration to say that the most important “job” in any society is saving part of what you produce and loaning it to other people so they can create wealth in ways that are impossible in a subsistence society.
If you work and support yourself economically, good for you. That’s morally praiseworthy, and is the least we should expect of every normal human being. But if you work and you don’t save money, I’m taking off major points–you’re not really supporting yourself. You’re just supporting yourself FOR NOW.
Saving and investing are both morally and economically more virtuous than merely living paycheck to paycheck. If you don’t save and invest, you are doing very little in terms of absolute contribution to “give back” to society. Working 5 nights a week for free in a soup kitchen does far less to help other people than investing money you’ve earned. Savings and investment are the sine qua non of societal improvement and wealth. Even if Arab societies fixed everything else that is wrong with their miserable countries and culture, if they still outlawed making money off loaning money, they’d still stay dirt poor and primitive. The only reason they’re not as bad off as most African countries is oil.
And you can’t underestimate the personal growth that comes directly from the discipline of saving. You learn to be future-oriented. You learn to manage and respect limited resources. It makes you a better at ordering your values and priorities in every area of life.
The billionaires who’ve been lately bragging about giving away their fortunes are doing society a terrible disservice. They’re removing large sums from the investment pool to spend it on mere charity. Think about this: Is it better for the sick that billions be spent on building AIDS hospices or to invest that same money in drug companies? Are more people better off now because there’s no shortage of AIDS hospices or because a cocktail of new drugs makes AIDS a chronic condition rather than a short-term death sentence?
Writ large, all charity accomplishes less long-run general good than investment. The purpose of charity should be to mitigate the impact of emergencies and great misfortunes. Anything more than that is misalloation that robs us of innovation.
So much for that smarmy phrase “giving back.
The great majority of people who have jobs have them because somebody invested savings and came up with new ways to be productive. The guy who’s got a job hasn’t given anything to the innovators who made it possible. Shouldn’t he be the one first expected to give back?
Thus, I propose an 80% flat tax rate on all earned income and a zero tax rate on all capital gains. I’ll compromise, and make that zero rate apply only to long-term capital gains if that makes anyone feel any better. If it makes you feel even better, I’ll propose any income tax rate you want as long as we keep the long term capital gains tax at zero.
Every increase in capital gains taxes throws sand in the economic machinery. Capital becomes less liquid because people hold on to equities too long to avoid the sting of realizing their gains. Money that would likely be reallocated to undervalued industries is sucked into the government waste machine. Many people on the margins, those who are young or poor or with low self-control, are further disincentivized from joining the pool of investors. (By the way, as an interesting thought experiment, ask yourself, why does the government cap the amount people are allowed to contribute to retirement accounts? and cap it pretty low too? what would happen if they didn’t?)
Every tax break we give to low wage earners encourages them to be even more profligate and short-sighted. Currently, there is a general societal expectation that all children should grow up and work all their lives. Imagine a society where the expectation is that you’ll grow up, work, save and invest so that by the time you’re 40 you’ll no longer HAVE to work. This is the worst thing about resenting and disincentivizing investment: it keeps the majority of people trapped in envy, short-term thinking and believing they have no alternative but to keep trudging 40 years through the job tunnel.
If you resent the rich and want their wealth “spread around” you are a douchebag. Or a Wiener. And unless you make yourself part of the parasitic system, you will end up as one of life’s pathetic losers.