James Kwak provides his critique of Greg Mankiw's defense of Mitt Romney's tax rate on his gains as a private equity manager which are taxed at the capital gains rate of 15% and not at the 35% tax rate for labor income.
In an earlier post I ignored the points raised by Kwak in order to show the subtlety in Mankiw's defense. It was only necessary for him to make the point that it is difficult to define a capital gain in some of the examples that he gave. Kwak, argues that Ronmey provided labor in achieving his gain at that it should be taxed at the ordinary income rate.
One could go further and ask whether Romney had any capital at risk. The rationale for the lower tax rate for capital gains is to encourage risk taking. One could take this a step further and ask why the gains from labor should be taxed at a higher rate than the gains from capital investment. They were taxed at the same rate prior to GOP tax "reforms". Neither Mankiw or I went that deeply into the topic.
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