War of the Words

A combat of sorts, regarding the capital gains tax.  Mankiw has an article in the NY Times, Uwe Reinhardt has a response, and Steve Landsburg has a response to Uwe.  Easier to just link to Mankiw's blog, which has all 3 linked.  What are my thoughts, you ask?  Read on, I say.


Re: Mankiw:  I like the slow evolution of what is clearly a capital to something that is clearly income.  It truly paints a picture of how tricky it can be.

Re: Reinhardt: He agrees with Mankiw up to a point, but differs in that he believes that the distinction is not fuzzy at all.  I question the introduction of horizontal equity, as that is a preference not necessarily agreed upon by the general public (see comments made by Romney and Santorum), but I agree with the idea that investment in human capital can be just as beneficial as investment in physical capital, especially considering the structure of our economy.  I don't understand his last two paragraphs, his argument against why there isn't double taxation and why there should be subsidies.

Re: Landsburg:  First question(s) is (are) moot, as Reinhardt is arguing that the line ISN'T so hazy.  Reinhardt refutes the "specialness" of capital gains (through capital investment).  Further, some of the lines Landsburg has for the first questions are not hazy.  I don't think there's a hazy line between quotation and plagiarism at all.  One cites its source, the other is to claim a quote as one's own.  I don't see how this can be hazy - either you cite your source or you don't.  Pat on the back versus assault with intent to harm? Either you intend to harm or you don't.  Landsburg's questioning about fairness demonstrates that he has no knowledge about micro theory; the theory has a very clear definition of what fair is.  Whether "not taxing at 100%" is actually fair or not, I'm no game theorist/behavior economist, so I can't speak to that.  Question 3, economist version, though it might seem clever, has had some work done.  Research has been done on "optimal" taxation.  Question 4/5 make me wonder if Landsburg even understands taxation.  When you put money into a bank account, you don't get taxed on the total money in the account at the end of the year; you get taxed on your interest.  And again, micro theory has a definition on what fair is.  Landsburg's arguments are poor, and his questions demonstrate he has very little knowledge of how economics actually works (to be fair, they might be legitimate questions he has, as he attempts to learn economics).  I'm surprised he didn't attack the issue of double taxation.

An additional note: one commenter in the Landsburg post scoffed at Reinhardt's article after Reinhardt said we "desist from using the tax system for any kind of economic or social engineering" and questions why even tax.  Tax can be seen as revenue generating; you need some source of money to fund public goods, which I am hesitant to call "economic or social engineering".  One could argue about using deficit spending, but we've seen what a debacle that can leave governments in.