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Sunday, March 11, 2012

The proper tax rate on capital income is zero

Sumner and Mankiw are lost in their models.
Accountants are much more practical and clever than these two profs. If the rates of taxation of different forms of income are dramatically different, there will be lots of money and time spent on tax arbitrage.
The wealthy will have incentives to convert all income to capital income.

Sumner even admits this in his essay, but then goes on to say we should do it anyway and adds a push for a one time wealth tax. Who thinks that any republican would accept a wealth tax in return for zero tax on capital gains?

Economics: The proper tax rate on capital income is zero

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