By Tim Worstall
This is one of those well, D’Oh, statements - how the returns to investment are taxed affects investment. For of course it does, tax anything and you get less of it. So, tax the heck out of those who have invested successfully - dun the rich, confiscate the billionaires, equate capital gains and income tax rates just to mention three proposals floating around - and less investment will take place. That’s just how humans work.
Thus higher taxes on investment, upon having invested, are an excellent way to reduce investment in the British economy and we are all agreed, right, that what the British economy suffers from is an excess of investment?
This reduction in investment even affects inheritance tax. The abolition of inheritance tax increased investment in firms that would likely be inherited by family members.
All very obvious, despite those varied proposals floating around.
We’ve now another proof of the point from Willy Hutton:
Defence security must be secured by issuing low interest-rate defence bonds – attractive to buyers if they could be passed on free of inheritance tax.
Lowering the tax upon having invested increases the amount people are willing to invest. That’s why it’s possible to pay a lower interest rate and yet still attract the desired amount of investment - because people are more willing given the lower tax burden. That whole idea depends upon the very same point we make above - investment is influenced by the tax rate upon it. Thus increasing the tax rate upon investment is only justified if we think there’s already too much of it. If we - as we generally do - think there’s a current paucity then reduce it, obviously.
Isn’t it lovely what we can prove by simply taking the arguments of others seriously and seeing where they lead? If reducing the tax rate on investment will increase investment then, and therefore, the claim is that taxes upon investment hinder investment. Good to know, eh?