"The only risk you take is that you might select a bad company." - that's the same risk an investor takes no? Except the investor can diversify across many companies, while the employee can rely on only one. Yours seems like an argument for investors to pay a higher rate than an employee, because they can diversify their risk.

Personally, I don't think taxes should be based on risk assessment.

If there was no capital gains tax it would almost certainly reduce investment in risky industries. For example, high tech.

The risks should be reflected in the possible return from the investment (pre-tax), and it is. This is most obvious with fixed-income investments (bonds) where the rate is directly derived from the perceived risks.

The justification also breaks down when you recognise that capital gains taxes are the same for investments in any sector: If it's supposed to reward risk-taking, why tax investments in retail or insurance stocks the same as early-stage venture capital?

It is recognized to some extent. Thats why interest has a different taxation rate than capital gains on stock investments.

> You might get a return, you might not and therefore the taxation rules should reflect that.

So... you take a loss on your taxes, probably spreading it out in some way so you don't pay taxes for a few years, if it's a serious enough loss. Right? Why does the rate need to be different?

Probably spreading it out in some way? You must also have a have a future gain to offset that loss. The rate difference is to compensate for the risk that you are taking by investing the money. Again, as a worker you have essentially no risk of capital (only of effort).

Furthermore, I think you are misunderstanding the double taxation argument. The double taxation arises because the company has already payed tax on their profits.

Selecting a bad company is a pretty big risk. It may do a lot of damage to your career from which you potentially never can come back. The opportunity cost is pretty high.

I don't believe capitalists take more risk or should get preferential tax treatment.

it's not just capitalists who get a lower tax on investment income - it's everyone.

It's a little skewed towards wealthier people, don't you think?

Think of it this way. If taxes on investment income are raised, those who aren't wealthy will have an even harder time catching up to those who are

I don't think that's accurate. As of now the wealthy are pulling away quickly. This will continue if the majority of of workers' income (salary) is taxed higher than the income of investors.

yes, but those workers will at some point retire and live off their investment income, no?

And they would have had much more money to invest if their income tax had been lower.

You don't seem to want to understand my point: Low taxes for investment benefits wealthy people disproportionately. Yes, lower income also get some benefit but the vast majority goes to the wealthy. Same for all the Republic "tax reform" proposals: A little tax cut for small incomes, large tax cut for high incomes.

it's a zero sum view of the world that is not correct. You could be lower income when you are 30 and wealthy when you are 65. So it's a lot of the same people that benefit. But more importantly, you are not considering the benefit of higher investment that the wealthy make because their investment taxes are lower. Higher investment leads to more economic activity and more jobs. In fact, the whole world has moved over time for this reason to taxing consumption more than investment.

Yes, I understand Saez disagrees. But he is hardly the final word on this. Hardly.

> Higher investment leads to more economic activity and more jobs

In some cases. Investing in the stock market doesn't. It's just a somewhat randomized wealth redistribution system. If I invest $1M in IBM, IBM doesn't see any of that money. Nor do the investors in IBM. It might move the price of a fraction of a penny, but the money just goes to whatever person sold their stock.

So, some investment (private companies, municipal bonds, etc) leads to more economic activity, but not all investment. I'd be interested to see the breakdown.

Most people aren't wealthy at 65. Some do, but that's an exception. You seem to live in a different world than I do.

Average net worth of a 65 year old is over half a million in the US.

most 65 year olds who are wealthy at 65, weren't at 30. Just pointing out that if you support a policy because you don't think it will affect you, it very well might later on. But that's an aside point, not the main point.

Very few people actually do that. Majority rely on government checks when retired as they can't save / invest a sizable capital during their life working normal job to really be able to live on dividends from that.

I grew up pretty poor and a lot of people I know are still working. My step mom is 80 and still has to work. A lot of poor people never retire.

Also, we have ways to encourage and provide benefits for people who are lucky enough to save for retirement. 401Ks, IRAs, etc... You don't need a lower capital gains tax, instead, provide more benefits for investments specifically set aside for retirement if you think not enough is being done.

poor people already pay very little to none income tax. lower capital gains tax is supposed to stimulate overall investment, which leads to more jobs, including for poor people. That's the idea behind it.

Well, what else are you going to do with that capital? Stuff it in a mattress? The Government really doesn't need to encourage people with money to use it to make more money, that happens naturally.

You might argue that they'll just "waste" it on goods and services, but that's what keeps the economy moving so it's not really a waste.