Must-Read: David Kamin: Taxing Capital: Paths to a Fairer and Broader U.S. Tax System

Must-Read: The Golden Mantra of public finance is: it is very expensive to tax things that are elastically supplied, so load your taxes onto things that are inelastically supplied. Old capital and the profits received by it are inelastically supplied. But how about savings? It is, I think, still largely an open question–and a question to which I would expect the answer to vary across countries and eras…

David Kamin: Taxing Capital: Paths to a Fairer and Broader U.S. Tax System:

Taxing capital is a key way to maintain and increase progressivity in the U.S. tax system and raise revenue….

Why turn to capital as a source of government revenue? Taxing capital is a highly progressive form of taxation that research suggests does not seriously affect the rate of savings among high-income Americans—an important consideration in terms of encouraging future economic growth—and is a key part of optimal taxation in the United States. Yet the federal tax rate paid on capital income is, on average, relatively low, due to a combination of factors including low existing rates, special tax breaks, and the gaming of the system to avoid paying taxes on capital.