tl;dr; - we (the economy) currently spend too much labor finding marginal investments because that activity is under-taxed. So less investment would be a good thing.
If I have $100,000 in a savings account, someone could spend X hours to invest that money and over a time t double it to $200,000. That value needs to be divided among:
The government (as taxes),
The X hours of work,
The time t of capital use (which also compensates capital for the risk).
The key fulcrum there is $/X—people won’t spend time finding good investments unless they can make enough $ from that to justify not spending the time doing something else.
If it is easy for people to find things to invest in, they will pay more for capital, and returns for t go up. If it is hard (or there is just too much capital) then returns to t go down.
When taxes go up, that reduces the pool available for X (and paying for t). Which would make marginal investments not happen. Which reduces the demand for capital, so first the return on capital will reduce to zero profit (after adjusting for inflation and risk), and then marginal investments won’t be discovered and funded.
Now, note how this interacts with the proposed policy:
Taxes on capital over time are set at 0. We are only taxing the excess returns above “safe” and refunding for losses as we go, so there is no tax collected on the portion of the profit allocated to capital
The tax rate on the portion allocated to labor is set equal to that on other labor. Currently, spending time to find investment opportunities has a lower tax rate than spending time working as a dental hygienist. That is a distortion that is causing people to spend more time setting up tax shelters / analyzing stocks instead of doing other things that would also be productive. Plus doing things like shifting payments to executives and investment managers to the form of capital gains as a pure tax dodge.
tl;dr; - we (the economy) currently spend too much labor finding marginal investments because that activity is under-taxed. So less investment would be a good thing.
If I have $100,000 in a savings account, someone could spend X hours to invest that money and over a time t double it to $200,000. That value needs to be divided among:
The government (as taxes),
The X hours of work,
The time t of capital use (which also compensates capital for the risk).
The key fulcrum there is $/X—people won’t spend time finding good investments unless they can make enough $ from that to justify not spending the time doing something else.
If it is easy for people to find things to invest in, they will pay more for capital, and returns for t go up. If it is hard (or there is just too much capital) then returns to t go down.
When taxes go up, that reduces the pool available for X (and paying for t). Which would make marginal investments not happen. Which reduces the demand for capital, so first the return on capital will reduce to zero profit (after adjusting for inflation and risk), and then marginal investments won’t be discovered and funded.
Now, note how this interacts with the proposed policy:
Taxes on capital over time are set at 0. We are only taxing the excess returns above “safe” and refunding for losses as we go, so there is no tax collected on the portion of the profit allocated to capital
The tax rate on the portion allocated to labor is set equal to that on other labor. Currently, spending time to find investment opportunities has a lower tax rate than spending time working as a dental hygienist. That is a distortion that is causing people to spend more time setting up tax shelters / analyzing stocks instead of doing other things that would also be productive. Plus doing things like shifting payments to executives and investment managers to the form of capital gains as a pure tax dodge.