Low Capital Gains Taxes are Key for Startups and Democracy

Photo by Sharon McCutcheon on Unsplash

Earlier today someone made a comment on a post I had made regarding taxes. He argued that the capital gains tax was welfare for the wealthy. He blocked me after I posted this so I decided to repost here as a standalone piece.

In my opinion, the biggest advantage of a lower tax rate on capital gains is increased GDP. Economists suggest that for every 5% reduction in the rate, GDP is increased by .5% thus allowing the United States to shift the tax burden to the top 20% of wage earners — who pay almost 90% of taxes. Suggesting that the capital gains tax treatment is “welfare” is to ignore the fact that it allows 76 million Americans to pay NO income tax (44% of our population). In countries that don’t treat capital investment income differently than ordinary income, the wealthy focus on wealth protection and not wealth creation — this concentrates the wealth among a few families and eliminates the chances that entrepreneurs can get the necessary capital to create more wealth.

The lower tax rate on capital gains created the environment that caused investors to take massive risks on companies like Uber and Airbnb — companies that will create more than 6,000 millionaires this year. The rich already pay 90% of income taxes and they can do this because our system is designed to convince them to keep taking more risks and helping more and more Americans join the ranks of the wealthy. Break this system at your own peril.

Venezuela is a perfect example of how a government can create a tax regime that “equalizes income” but in doing so all but eliminate investment. In Venezuela the oil companies stopped investing in oil production in the 70s despite the fact that the country has the world’s largest oil reserves — the country’s refineries operate at 1/3rd their capacity as a result. The power companies stopped investing in power generation technology and stopped expanding the electric grid — last month the entire nation of 31 million people was without power for days. The people of Venezuela have almost no measurable income inequality today — the problem is that they can’t feed themselves…

About The Author

Alexander Muse

Alexander Muse is a serial entrepreneur, author of the StartupMuse, contributor to Forbes and managing partner of Sumo. Check out his podcast on iTunes. You can connect with him on Twitter, Facebook, LinkedIn and Instagram.