Consumer spending drives the economy. If we want to encourage something, it should be consumer spending. Business owners hire more people and expand their business when demand is greater. Having spare money/capital to invest isn’t enough – the demand (the customers) has to be there, and they have to have money to spend.
Consumer spending has historically driven the economy, but engineering the tax code to drive spending is not really a good idea. It’s what got us into many of the economic crises of the last 50 years by trying to replicate the engines of growth of the 1950s.
There’s no assurance for wage workers, either. Your company might get bought out by Mitt Romney to be chopped up and sold for scrap. Your employer might fire you without cause at any moment. You could get injured or sick and unable to work. But we’re all supposed to genuflect before the 1% who take a tiny portion of their holdings and make an investment that may or may not pay off.
So? Investing is still a great, easy way to make money, if you have money to invest. You’re only taxed when you do get paid.
It isn’t. It’s just as “easy” to lose money investing as it is to make it. Is it possible to lose money working?
There is a virtual assurance for wage workers, you’re just missing it. If you work for a day, you will be paid for that day. You are exchanging your time and work for a day’s wage. There is virtually no risk involved in this transaction. If you work, you will get paid.
In the current line of discussion, if you invest you may get a return that exceeds your investment, or you may get a return that is zero. This risk does not exist for wage workers. All of the things you list, companies being bought, getting fired, becoming unable to work, none of them put your wage at risk for the time you actually work.
The only time that your wage is at risk for time you already worked is if your employer is committing some kind of fraud, or they run out of money. This does happen but it’s infrequent.
Does that make it more clear?
Over the long term, it’s very easy to make money investing (index fund or even government bonds). It’s hard in the short term.
So? Then you don’t pay any tax. And it is very easy work either way; often you can delegate it, for a cut, and do no actual work yourself at all.
Of course.
“You don’t pay any tax” doesn’t compensate you much when you lose money. And sure - you can delegate it, but you have no guarantee whatsoever that you will actually gain money. You know, the guarantee that you do have when you work and get paid.
Afraid not. You can invest in your own education and develop specialized skills in your job only to be dumped by your employer without cause. Or let’s take coal miners. Bust your ass for 20 years and get black lung. Or die in an explosion or cave-in. Does anyone seriously think investors in mines risk more than the miners?
You ever paid someone so you could work for them?
Over the longer term, as noted, unless you are an absolute complete idiot, your investment gains will more than offset your losses. You will be taxed only on your net gains.
How does taxing wages at any particular rate encourage (or discourage) production?
Say Mr. Smith is fortunate enough to have a 40 hour a week job at the widget factory. The amount of widgets he produces per week, month, or year isn’t going to be affected by the tax rate on his wages.
It’s a different story for Widget Co., however. If their ability to raise capital is reduced due to higher taxes on investment, their ability to start a second production line, build a new factory, and hire more workers will also be reduced.
… and if the taxes are higher, they will discourage investment.
It’s a tradeoff. All taxes discourage something, so we try to pick the best balance of ensuring enough revenue for government functions and minimizing the discouragement of various kinds of economic activity.
No more than higher taxes on wages “discourage” work.
In fact, maybe less so. If one chooses to spend less time working, one receives a very direct and meaningful return: time to do other things. If one chooses to invest less of one’s free capital, one receives… nothing much.
Are you equivocating the meaning of “invest”? The term being used for investing in things like stocks or other capital investment is not the same as you use above, investing in education or skills.
In the examples used thus far, the comparison is which activity carries risk. If you work for a day, you will be paid for a day. No risk involved. If you invest a day’s pay into a stock, you may see proceeds, or you may lose everything. There is risk involved.
Does that make it more clear?
Yes, higher taxes on wages discourage work.
I understand what you’re saying but the vast majority of venture capitalists are not putting all their eggs in one basket. They’re pretty well assured that some of their investments will pay off and some will not. They’re like roulette players who cover every number on the board with special rules that they get paid 40:1 rather than 35:1.