Smasharoo wrote:
The problem with the "they'll add it back at a lower rate" argument is that the safest investment in the world, at the moment, and where most high net worth income is currently parked is.....loaning money to the US government.
And? So 100% of all investment is in the form of loaning money to the government? It's not? Then "everything else being equal", the share that last year went into job creating investments might be higher or lower this year. And that share may change based on tax changes. It's not like loaning to the government will become less profitable relatively speaking if the tax rates change, right?
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In a system without this option, it's a slightly better argument, but still flawed, but the actual dynamic tends to be that the more wealth high net worth individuals have, the safer investments they seek, for obvious reasons. Taxing them more actually leads them to take on *more* risk, not less, as they seek better return to offset the decline in real income lost through taxation.
Individuals, yes. The market as a whole? No. I'd explain this to you, but you honestly should already know better. "high risk" is meaningless as a market-wide term. Rate of return is normalized across risks/reward. If something is high risk, the reward is either worth it on average, or it is not. While an individual might take the risk and maybe make out big, the market as a whole will consistently return a result based on that risk/reward relationship.
That also doesn't change if you change tax rates. So if I need to earn X% return on my investment to offset profit losses due to higher taxes, it's not going to affect my investment decisions much (although it will marginally reduce the amount I have to reinvest each cycle). The biggest change in those decisions isn't about risk, but about long versus short term (short being kinda relative here). As I said earlier, about the longest term investment which can be made is one which involves employment. If you think about all the capital expenses required before you ever sit someone down in a workplace to do something productive for you, you'll realize why this is so. Then when you think about how long those employees must work at some productive pursuit before earning enough money to pay off that initial capital expense, you realize that it's even more so.
While that may not be a direct choice by someone investing in the market, it *is* going to affect the choices made by those he's investing in. It affects whether that company I bought stock in decides to expand their facilities and hire another hundred employees, or whether they'll just sit on existing profits and pay out dividends for a few years while weathering the storm.
I also think you're misunderstanding the idea of "lost income due to taxation". It's not like the wealthy investor loses income at all. He's making the exact same amount of money (assuming he's not living right at the edge of his total capital gains). It's about how much money he has to pull out of his investment pool to pay his salary (so to speak). Obviously this part is more relevant to capital gains taxes, but it's an important factor.
Let's say evil rich guy (let's call him Romney), has an investment portfolio worth $250M). Let's assume that he's invested in a bunch of different things, which earn a net growth of say $15M. Let's say that he wants to live on a modest $2m/year lifestyle. So, to do this, he must sell off assets from his investment portfolio sufficient to result in $2m after taxes. If taxes go up, he's not affected at all. He still gets his $2m/year allowance. All raising the capital gains tax rates does is determine how much he has to sell to end out with that $2m. You could raise capital gains to 80% and he could still live at the same level and would still be gaining net worth.
What it does is reduce the amount of money left over in his investment portfolio. Once we recognize that the amount past some arbitrary wealth point doesn't actually affect his standard of living at all, then we must realize that the wealth's primary effect is to benefit whatever the hell it's invested in at the moment. Now we can't know what that is. But everything else being equal, and assuming that job creation is some function of total market capitalization, then if we decrease the wealth relative to what it would have been, then we decrease the number of jobs relative to what it would have been.
Remember, we have to continually create new jobs to offset those that are lost all the time. We can't just keep the same amount of money doing the same things. It must always be growing, or we lose ground relatively speaking. Again, I'd explain why, but you should already know this.