Sunday, December 30, 2007

Taxing Wealth

Regular reader and frequent commenter Gerald Scorse has a guest post on tax policy over at Voices of Reason that's worth a read. While I agree with his overall argument -- that longterm capital gains should be taxed at a higher rate than income from work -- I have to take issue with this claim, which I've seen elsewhere as well:

Billions of shares change hands daily on the major exchanges. On any given day, only a minute fraction of those shares grows anything. Days can pass without a bona fide investment; the sounds you hear are aftermarket noise and the closing bell.

In short, "investors" do not grow jobs (except in the financial sector). The seed money that nourishes start-ups and expansions comes from a tiny subset of real investors; the rest of us merely place our bets at the tables down on Wall Street. 

While it's true that only IPO's actually generate revenue for a company issuing stock, the market capitalization resulting from rising stock prices can create a more favorable credit environment for a company to invest in expanding its business. So aftermarket investors do contribute, albeit indirectly, to economic expansion.

Posted by Judah in:  Markets & Finance   

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