Steve Waldman and Garrett Jones are having an interesting back and forth over at interfluidity and econlib. It’s about optimal tax rates for capital income and labor income. Jones is a big fan of the Chamley-Judd view that capital income should be taxed at zero. Waldman is not, or more accurately, he thinks the Chamley-Judd model is way off the mark in many ways. Read his whole post on it. It is approachable and great.
I am not sure what to make of Jones’ answer to Waldman. It didn’t strike me as very responsive. Nonetheless, he seems to concede that Waldman has a point, and then pulls back into saying that Chamley-Judd should be our analytical starting point, with arguments diverging from there.
There are sound arguments for positive capital taxation, sound arguments for negative capital taxation. Let’s start with zero and go from there.
I don’t like this. In my view, we should use a different starting point, one where we make the assumptions that support a negative capital income tax rate of -0.1%. So let’s change the blockquote:
There are sound arguments for capital taxation rates above -0.1%, sound arguments for capital taxation rates below -0.1%. Let’s start with -0.1% and go from there.
Why? Well why not? Starting points in situations like this are conceptually pointless. They are the consequence of intellectual weakness, the same intellectual weakness that cause us to use fictionalized baselines to drive all sorts of bad arguments about economic policy and economic fairness. If we must use a starting point, let’s at least use one that is so jarringly strange that it tips people off to how weak and conceptually useless the starting point actually is. Zero doesn’t do that because it is too precise and neutral-looking.