Tango, haven't IRAs and 401Ks provided a vast pool of funds which trade without capital gains tax?

Sure, a couple years ago. Now, not so much.

And anyway, the taxes are just deferred until you withdraw the money at President Obama's new higher rates! What a deal!

The average American under-contributes to those, and has "room" for tax free trading (though they might be better off with a good slug of broad index bond funds and index stock funds to provide a diversified base).

No one is arguing that investors stop investing. The point is that, at the margin, investors account for the effect of tax. Taxes distort decisions. Consider two extreme examples to model the behavior that results from tax presence. There are no capital gains taxes at all. In this case, investors will be allocating capital with fewer incumberances, thus, in the aggregate, investment capital will flow to the most efficient investments. Now consider a situation where the capital gains tax is 90%. The churn in the market will be reduced because 90% of any gain will be owed as tax. Rather than investment capital seeking the most efficient vehicle to generate returns the investment capital is more likely to stay parked in suboptimal investments because the investor is able to use compounding effects on what would be the money he would owe as tax. To put this in numerical terms, if the investment yield amounted to $1,000, the investor, after paying tax, would have a gain of $100 to invest in a new investment vehicle, however by not liquidating the investor can compound the $1,000 gain and hope for better future tax treatment.

Taxes distort decisions. Tax rates need to be investigated with dynamic, rather than static, modeling.

Steve

On the margin, an investor faced with a capital gains tax rate of X% will decide to realize the gain and thus create a tax obligation. At a rate of X+5% the investor will decide to forgo the realization of gain, or forgo the opportunity to rebalance the investment portfolio, thus depriving the State of capital gains tax revenue.

I mentioned the Gecko quote not as an endorsement, but only because the Sam quote brought it to mind.

And yes, this is a confession that I really have nothing intelligent to say on the subject.

This is good, though. I agree with this:
"It’s one thing to argue that the rich have an ability to pay more and another entirely to argue they have a duty."

And, on a different note, Republicans support free trade because they (used to) feel protectionism is immoral, much as Dems feel inequality is immoral.

The interesting thing for me is that I'd see protectionism as a mechanism, and not an abstract goal. I favor free-ish trade because I think associated outcomes include many public goods. I wouldn't treat the mechanism as a goal (or a morality) though, because there are public costs.

(The only thing worse than a jobless recovery is a jobless non-recovery. We teetered on that distinction through the 90's and into the 00's. We certainly risk it again, IMO regardless of small differences in marginal tax rates.)

Dave correctly points us toward economic impacts. The tax the rich crowd never wants to acknowledge this, but levels are reached where, in the aggregate, income and investment fall.

In particular, individuals and small business owners react. When you've got your wad, working on your handicap becomes a viable alternative. These people are not stupid mules.

Matthew - From post #1. I would say amount of GDP produced, not owned. It may seem a small point, but there are those who believe "the rich" are a perpetual money tree on auto-pilot, to be plucked. Not so.

Several - If you looked at the available deduction structure in place in the 60's you would see that the top rate comparisons have no economic meaning.

Ugh - that statistic exists only because most of the income is investment income, previously taxed at the statutory earned income rate, and now a second time at the div rate. BTW - even if you changed the rates on those you cite you'd only run the government for about 3 hours. And you'd destroy the capital formation process. That would be really stupid.

Herb - The number of "rich" people and amount received through inheritance is actually quite low.

What I can't even post non-html links anymore without being caught in the spam-filter, bah.

Rescued. Quite weird: It went to spam rather than moderation, which never happens.

For two days, it was letting obvious spam through and now this. Don't get it.

Steve