HoltesThoughts: Capital Goods

Nearly everyone implicitly understands that money needs to be backed by something. Most Conservatives and cons feel that money should be backed by (or be) loot (tangible valuable portable goods). But in actual fact, due to a combination of factors, what they think of as "good money" is actually terribly poor quality money because of Gresham's law. [For more on this read my post: Gresham Law as a Tool of Regulation] People tend to hoard loot. The best money stimulates economic activity and supports economic exchange. But money has to be backed by something. It is credit. It is the credit of the entire country as a whole. Letting pirates privateer with that money is barbarous and piratical.

Don't tax Capital Goods, Gains and Labor compensation

More importantly, our tax system is backwards because the wealthy use sleight of hand language to confuse people and get laws passed that sound plausible but are harmful. Labor compensation is compensation for productive work. It is thus earned income and should not be taxed at all except perhaps to pay for general compensation (such as social security or Medicare/medicaid) that workers receive. Likewise actual capital goods and their yields should be deferred from taxation as long as they are in production.

Don't eat the Seeds, Do eat the Fruit.

Taxing labor compensation reduces people to poverty and can drive people out of the economy. Taxing capital goods and gains from them is like eating the seed corn just before planting time. Both taxes make everyone poorer. But taxing economic rent marginally makes everyone better off, including the rentiers as it stabilizes the economy and people's lives.

Do Tax Unearned Economic Rent

At the same time, economic rent derived from stocks, corporate ownership, land or privatized money, should be taxed progressively on marginal principles. In the case of money, taxing excessive unearned money income [usury or economic rent], is for the sake of regulating money.

That things are backwards reflects propaganda and sloppy language. With clear logic we'd see how to protect family farms, small business and reduce the power of monopolies and incipient oligarchs.

Wonky Parts

I wrote this post mostly to express my updated understanding of [Henry] Georgian capital and related terminology, gained from a recent convo on Facebook.

Piketty's book makes capital synonymous with all wealth. That definition confuses simple loot with the kinds of goods that drive a successful economy. Henry George talked about three types of property; labor, capital and what he called "land" and what we would call "natural resources." Capital is earned, as Lincoln said:

Capital Goods and Capital Yield

Both Actual Capital; Capital Goods and capital yield reused in production should be sheltered from tax as long as they are working for the economy. Similarly labor compensation should not be taxed. Both are productive goods and services, while the goal of taxation is to regulate business and unearned wealth.

I was using the term "actual capital" to describe describe "capital goods" in the course of production.

“Capital Goods are goods being used in production of the goods and services that drive a successful economy. Capital yield is the production from the mixing of capital goods & labor. Our society should not tax capital goods those goods should be left alone. Capital gain belongs to both labor & capital & so it should be protected too – as long as capital goods and yields remain in production.

Need for Careful language

If our economists were more careful with language and definitions we wouldn't face the massive rip offs we face. Yes, people should engage in charity. Yes, for religious folks charity should be a social function associated with their religion of choice, however, unless businesses and wealthy persons tythe anywhere near sufficiently to compensate for the goods and services they receive from their legal privileges, then those who don't do their duty should pay a duty (tax). It is simple logic. But in the hands of corrupt lawyers it gets confused. There is a lot of unearned economic rental income from land, possession of debt and loot (money), and corporate privilege. That income is what should be taxed progressively. So that those who actually earn their bread are taxed less than those who live on unearned economic rent.