To Tax, Or Not To Tax, That Is Not The Question
Traditional tax and spend thinking says to raise or lower taxes on various income groups. It’s not politically feasible to make big changes to the U.S. tax structure frequent enough, and something else can be done; something more thoughtful and out-of-the-box:
Give lower income earners access to capital income. No, wait, give it to everyone.
There are multiple policy proposals that attempt to solve income inequality. But there are really two macro-level approaches:
- Tax rich people more
- Tax poor people less
It doesn’t have to be this way. Countless studies show that individuals that have access to capital income, as opposed to ordinary income, end up building more wealth. Wealth is more important than income over the long run (think home-ownership h/t Russ Grote). Giving workers a share of the profits is also how a company can increase productivity. Silicon Valley companies should know this more than others.
As Mark Suster points out, wealthy individuals are taxed at lower rates via capital gains. Ordinary income is taxed at a higher rate.
I argue, as well as many others, that the problem is not the tax rates, but the access to the various types of income. Align the incentives, and there’s a good chance we solve both income inequality and boost economic growth.
So far, the only Presidential candidates to offer proposals on this mode of thinking are Hillary Clinton and Bernie Sanders — see Clinton here and Sanders here. It’s unfortunate that the Republican party hasn’t adopted this platform. This is not political ideology. It’s actually very market driven, which is traditionally Republican thinking.
I’d encourage Silicon Valley companies and others that can attest to the positive reinforcement of share ownership to champion it to policymakers. Otherwise, we’re stuck in the same old “to tax, or not to tax” debate.