Yes, Close the Loophole

I don't believe in taxation in general. I don't believe in sovereignty or government either. All that is implied in the label "anarcho-capitalist" which is part of the mission statement of this blog.

Ordinarily, then, I wouldn't get involved in debates over particular tax proposals up or down. It is my mission as an anarcho-cap to think out of precisely that box.

Still, I have seen (relatively) strong and weak arguments made in "within the box" terms, in debates especially over what does or doesn't count as a capital gain. I know the difference -- between strong and weak that is -- and some of the arguments made to defend tax loopholes, made to defend in particular favorable capital-gains like treatment for some very ordinary-income type cash receipts (by the managers of hedge and private equity funds) are painfully weak.

I keep hearing and reading these bad arguments for how compensation for that particular sort of well-remunerated employment should really be considered capital gains because it takes place within the context of a limited partnership and the managers have their own money involved so its only fair to be nice to them and we don't want to wage class warfare by calling compensation by its right name. It is painful to watch it, but I do my duty.

On September 8, on this blog, away from the obligations of employment and propriety, I discussed the general considerations governing why capital gains are generally treated favorably in the first place. All I'll say today in expansion upon that is: Leges non verbis, sed rebus, sunt impositae.

Or, in humbler non-Latin terms, I reminded of the story about Abraham Lincoln in which he asked a cabinet member, "how many legs does a dog have if we call a tail a leg?"

"Well, sir, then it would have five."

"No. It would have four. Calling a tail a leg won't make it a leg."

Income is income, and income earned by managerial effort is "ordinary income" for which the law prescribes a rate. Calling it capital gains for various spurious reasons ought to stop. Or ought to be seen for what it is by the general run of folks who can't benefit by such trickery, in the hope that seeing what is underway here will diminish their attachment to the myth of sovereignty and will help hasten the day of anarcho-capitalism.