Taxes on capital gains are harmful and don't make sense. It would be more efficient to tax consumption and have no capital, estate, income, or corporate taxes. Scott Sumner has written many excellent articles about taxes on capital gains:

- http://econlog.econlib.org/archives/2017/07/do_you_really_w....

- http://econlog.econlib.org/archives/2014/04/theres_only_one....

- http://econlog.econlib.org/archives/2015/09/our_bizarre_sys....

- http://www.themoneyillusion.com/?p=26636

Unfortunately sensible economic policies aren't politically feasible. This is partly because of the economic illiteracy of most voters and the lack of incentive for politicians to adopt economically sensible policies, but also because economists themselves often misunderstand economic theory.

Do you realize that taxing only consumption means taxing the poor a lot, and the wealthy almost nothing?

Who ultimately pays a tax burden does not depend on who sends the check to the government; it depends on the relative elasticities of supply and demand. The tax paid by people, wealthy or not, comes either out of consumption or investment. When people consume goods and services, the labor and materials used to produce them cannot be allocated to produce goods and services for other people. The same is not true of investment, which is why you want to tax consumption and not investment.

If the government taxed 90% of Warren Buffett's wealth, Warren Buffett wouldn't consume less, he would just have less investments. The government would have more money, but if it spent the money on giving food to the poor, the food would have to come from somewhere, and it wouldn't be from Warren Buffett whose consumption was already modest. If the tax doesn't reduce your consumption, someone else is paying the tax, not you. Taxing 90% of Warren Buffett's wealth and spending it on welfare programs wouldn't make the poor better off, it would mainly make capital markets less efficient (which would make everyone, including the poor, worse off).

Capital income does make Warren Buffett richer if he makes wise investment decisions that make markets more efficient, but as long as he doesn't consume the gains it changes nothing, and as soon as he or his heirs consume the gains they would be taxed by a consumption tax.

Income taxes have the same issues as wealth taxes, so you want to tax only consumption. And a tax on estate is just an additional tax on future consumption by heirs. It makes no sense to tax future consumption at different rates than current consumption, so it's better to just increase the consumption tax than to add an estate tax.

Unfortunately I don't have time for a full response, but:

* I don't want to tax wealth at 90%, that's a straw-man, but let's use it as an example anyway

* In your extreme scenario, there would be an increased demand for food. Greater demand would increase prices. This would move the allocation of resources to food production from, say, Ferrari production. You would have more food production and poor people would eat better.

* The outcomes of taxation and other economic levers are never represented by monotonic functions. The optimal options are always somewhere "in between" the extremes, so saying "taxing at 100% doesn't work, so we should tax at 0%" is a fallacy.

> I don't want to tax wealth at 90%, that's a straw-man, but let's use it as an example anyway

My intent was only to use it as an example. You can change the percentage to anything you want, as long as it is low enough not to have an effect on Warren Buffett's consumption. And if it has an effect on Warren Buffett's consumption, then you could do the same thing with a consumption tax so that wouldn't be an argument for taxing wealth over taxing consumption.

> In your extreme scenario, there would be an increased demand for food. Greater demand would increase prices. This would move the allocation of resources to food production from, say, Ferrari production. You would have more food production and poor people would eat better.

Indeed. But this is just as true if the spending on food is funded by a consumption tax. This is an argument for taxes, not an argument for income or wealth taxes over consumption taxes. I also believe taxes are harmful in general, but that's a separate point from whether a consumption tax should be preferred over an income or wealth tax.

> The outcomes of taxation and other economic levers are never represented by monotonic functions. The optimal options are always somewhere "in between" the extremes,

I don't see why this ought to be true and you did not provide any evidence to support these claims.

> so saying "taxing at 100% doesn't work, so we should tax at 0%" is a fallacy.

It is, but not for the reason you stated. Saying "taxing at 2% doesn't work, so we should tax at 0%" would also be a fallacy if the optimal tax rate happened to be 1%. This has nothing to do with extremes.

> Indeed. But this is just as true if the spending on food is funded by a consumption tax.

The problem is that eating food IS consumption. For very poor people, food is the main consumption. That's the bad of taxing consumption - that it naturally taxes more the poor, making them even poorer, than the rich.

>> The outcomes of taxation and other economic levers are never represented by monotonic functions. The optimal options are always somewhere "in between" the extremes,

> I don't see why this ought to be true and you did not provide any evidence to support these claims.

Of course, if you think that there should be no State - and therefore no taxes - you won't believe that. But if you admit that some public services are necessary (eg police, defense from external threats) then it's obvious that a 0 tax rate is bad - 0 taxes mean 0 public services.

On the other hand, 100% taxation would mean that there is nothing left for people to spend. That can't be good.

If the benefit from taxation is 0 at the extremes (0% and 100%), and non zero somewhere in between, then the curve can't be monotonic.

> The problem is that eating food IS consumption. For very poor people, food is the main consumption.

Then tax consumption enough to pay for the food accounting for the consumption tax that will apply to the food. That the amount of money you need to pay for the food increases as the consumption tax used to pay for the food increases is not a problem as long as anything at all other than food is being consumed in the economy. (If it happened to be the case that nothing other than food was being consumed, that would just mean it isn't possible to supply enough food—an income or wealth tax wouldn't be able to change anything about this.) The consumption tax needed for the government to pay for the food will be lower than the income or wealth tax that would be needed for the same thing.

Taxing investment to pay for food is only going to work insofar as it reallocates resources from the production of whatever the investments were in to the production of food. A consumption tax can already do this reallocation more efficiently. If your goal is to make the economy produce more of food and less of other things, this goal can be achieved more efficiently with a consumption tax than with an income or wealth tax.

> That's the bad of taxing consumption - that it naturally taxes more the poor, making them even poorer, than the rich.

It only taxes the poor more in proportion to their wealth, to the extent a higher proportion of the wealth of the poor is consumed instead of invested, but not in absolute terms. In absolute terms, it is the reverse, since the rich consume on average more than the poor even if this consumption is less as a proportion of their wealth. The tax on consumption taxes your absolute consumption, not your consumption as a proportion of your wealth, so it does make the poor better off in relation to the rich.

> But if you admit that some public services are necessary (eg police, defense from external threats) then it's obvious that a 0 tax rate is bad - 0 taxes mean 0 public services.

Even if these public services could not be provided without taxes, the reason having no taxes would be bad would not be that it is an extreme. But public goods can be provided without taxes. For the police, courts and laws, chapter 29[1] of The Machinery of Freedom describes one way this could be done. National defense can be funded with dominant assurance contracts, as can many other public goods (even when they can't be made excludable), including lighthouses, scientific research, information goods such as books, software, or art, clean air, and free-to-air television. So even if some public services are necessary or even just desirable, it is not obvious that having no taxes is bad as they can also be provided without taxes.

[1]: http://www.daviddfriedman.com/Libertarian/Machinery_of_Freed...

You can't design rationally a new human society and expect it to work as designed. It's the same error that Marxists did.

Is that sort of meta reasoning an efficient way to get at the truth? There are much better arguments that can be found against Marxism. Saying "But what if the Marxists said the same thing?" is a low-effort excuse that can be used against the proponents of any belief you don't like. It's better to take the reasoning at face value and address the arguments directly.

I'm not saying "But what if the Marxists said the same thing?". I'm saying that trying to revolutionize how society works based on a theory never worked as expected in history, and cited the Marxists as the biggest example.

My first comment said that sensible economic policies are not politically feasible. I certainly don't predict that sensible policies are going to be adopted or sensible systems created through our current political institutions. Meanwhile, Marxism failed because the theory was wrong, not because it was politically unfeasible. It is possible for a system to never happen even if the theory behind it isn't wrong—Nash equilibria can remain and not spontaneously turn into Pareto optima even when there exists a Nash equilibrium that is a Pareto improvement over the current equilibrium.

There haven't been that many large scale attempts to revolutionize society in history and some have worked just the way some people expected without hindsight. So it is in fact possible to predict the outcomes of a large scale system through causal reasoning and to have a reasonable idea of their desirability.

> There haven't been that many large scale attempts to revolutionize society in history and some have worked just the way some people expected without hindsight.

Which ones worked "just the way some people expected without hindsight"?