Originally Posted by Warfish
So Investmenr Income is now taxed at say 35% (similar to labor income).
What are you going to do that is going to "hurt the economy" other than choose not to invest, and thus rob yourself of 65% of the return you could have seen? You're simply not going to sit on it, you're going to save it (so it's in a banks posession to loan), spend it (thus moving it into the economy) or invest it anyway (the most likely, as 65% return is still better than 0% return less inflation).
And of course, the Government will have all that much more to spend into the economy as well.
I'm honestly curious. If you are investing it, you're clearly not in need of it for living expenses, so is the 65% return instead of a 85% return going to kill you? And shoudl your work-free investment be taxed less than the labor-derived income of your paycheck?
Either you didn't understand my response or I didn't write it clearly enough. If I were to choose not to invest in a business the economy would be robbed of the labor income from the workers I would employ at said business as well as a nice share of the profits from said business. I will give you a real world scenario. Imagine a hotel property. It costs 25 million in upfront capital and loans to build and open. When this hotel generates a profit of say 1 million dollars that profit is taxed at the corporate rate of 35%. Then an investor recieve their share of the after tax profits of say $650,000. You example has the government now taking 35% of that 650K leaving the investors with $422,000 to split up.
In this scenario the government has taken approximately 60% of the total profits and kindly left the investors to scrap over approximately 40%. Here is the problem. If we look back at that investment and simply took the 25 Million and invested it in insured tax free munis at say 4% interest the investor would net $800,000 with no risk. That hotel would never be built, its employees would not be employed and the government would lose out on the 35% + 15% of the profit they currently take.
Now some investments have an ROE so large that they would be made regardless of the tax rates. The problem is that the majority of projects, certainly the ones I've been involved with over the years, operate at the margins. They just squeak by that level where it is worth doing. I'm not sure where the perfect balance lies but the idea of first taxing corporate income then taxing the after tax profits at a high rate will undoubtedly stifle some investment. In the end the lost revenues from the stifled investment will cancel out or exceed the additional revenues from the higher rates.