Much has been written about legislative efforts to change the current tax code by which hedge fund and private equity managers classify part of their income as capital gains, taxable at 15%. Now, Belmont professor Mark Schenkel proposes expanding the loophole:
We could ‘level the playing field’ by allowing entrepreneur’s to label their compensation from new venture creation activity as capital gains too! Under the standard logic that lower taxes encourages economic development, shouldn’t this lead to the generation of more economic value?
Effectively, this advocates two sets of tax rates, the higher ones reserved for those who, by Schenkel’s implication, generate no value through their labors.
No economist would disagree with the premise that lower taxes stimulate higher investment, and lower taxes on entrepreneurial activities create greater incentives for entrepreneurs. The problem, of course, is that tax policy is not solely about maximizing incentives (this would be achieved by having no tax at all), but also about raising funds for the operation of the federal government. The real question is how to distribute this burden among the population.
I see no reason why Professor Schenkel’s salary from teaching future business leaders is currently taxed at twice the rate as hedge fund managers, since the Professor’s activities are much more likely to generate real economic value.
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