Last I'll say that I was a bit surprised by some of the blowback simply because this is such standard practice. Not only have capital gains been taxed at a lower rate than ordinary income throughout almost all of American history (with the gap even bigger when you consider that investment income isn't subject to Social Security tax), but the gap was particularly large during the postwar decades that progressives often cite as an example of a time when high tax rates were compatible with strong economic growth. In European countries with large welfare states, similarly, there's a lot of reliance on consumption taxes as a finance base.This is really sloppy and fallacy laden argumentation, in order:
- "Standard practice" - so lots of orthodox neoliberal economists think this way. So what? Shall I start of list of things that the neoliberal economic consensus was wrong about over the past 20 years? Maybe Yglesias is right that most economists agree with this, but it's not hard to find dissenters. One of them is the most famous (living) economist on the planet after all. He's not alone either. Krugman's problem with this policy is what I highlighted from Yglesias' last piece; the wafer thin nature of the evidence of the actual benefits we're supposed to realize.
- "American history" - most of American history has US federal policy largely controlled by wealthy interests, sometimes actually driving, other times using their veto on policy they don't like via the Senate (which was the explicit point of the Senate). The period between The New Deal to the end of LBJ's presidency is about the only period where liberal policies designed to benefit the majority were somewhat dominant. Even so, America didn't get universal health care in this period like so many other rich countries, so even then the rich still had outsized political influence. It's not shocking that they managed to keep their cherished tax break afloat.
- "Postwar decades" - Let's concede for sake of argument that progressives all think the postwar decades were utopia. Does that mean lower capital gains taxation is good? Or that this period was good despite this tax preference? Isn't that a more likely interpretation of progressive views on the subject?
Nobody on the left gets out of bed every day on raising the capital gains tax. If Yglesias has some vision of America where the rich pay their share other ways, then probably I and others wouldn't care so much about this tax break mostly benefiting the idle rich, but inequality is growing, various forces are trying to use government revenue shortfalls as an excuse to cut the programs most important to the bottom half of society, and in the absence of a strong case for the general benefits of this tax break, it should be "on the table" too. If an increase in the capital gains tax rate would keep some number of the poor able to get Medicaid or keep the Medicare eligibility age from increasing then damn right it should go up.
Actually raising the capital gains tax rate is not on any likely-to-pass agenda, but at least let's not help the 1% plead their case by claiming it's better for everyone that the Mitt Romneys of the world pay lower taxes than us working shmoes. The last thing we need is smug conservative pundits citing "even the liberal" Matt Yglesias as being in favour of this tax preference for the rich.