Three Interesting Articles about an Issue Related to Money and Capital Assignment

Three Interesting Articles about an Issue Related to Money and Capital Markets, Financial Markets, Financial Instrument - Assignment Example The first article "Economists are rethinking the view that capital should not be taxed" relates to policy making. Taxation is one of the major tools of fiscal policy. The policy makers consider the canons of taxation put forth by Adam Smith but some markets are so complex that it is almost impossible to achieve all the objectives of these canons: There are trade-offs. This article probes into the usefulness of tax on capital gains. Traditionally, taxes on capital gains have been low because of the belief that higher taxes would have an impact on growth. This article provides arguments against this view and suggests that taxing capital gains is a good idea. America’s current corporate-tax system is being blamed for the struggling economy. Currently, the tax rate on capital gains is 15% which is lower than in many countries. Since the 1970s and 1980s, many economics have believed that this tax must be made lower. Some argue that there should be no capital tax at all. Governments have to tax some part to restore equality and to fund public goods but there is an inevitable trade-off: taxes have an impact on consumption. Negative responses to taxation are harmful for the economy. Taxation has been dealing with inequalities that related to pay differences and these inequalities were addressed through taxation on labor. However, capital tax has more complicated implications because when tax affects the level of investments and savings, it has an impact on future growth and consumption. The economic sector has incessantly appealed the policy makers to cut the rate of capital tax and it was, in fact, brought down to more than half from 1950 to 1980. There is pressure for more and zero capital tax has been recommended by most economists. Messrs Piketty and Saez have argued that lower capital tax has brought more inequalities and lesser growth. They argue that taxing capital gains is not a bad idea because the capital markets are imperfect and it is appropriate to tax capital to provide social insurance against risks. It is commonly believed that capital investments are very sensitive to the changes in tax rates. In order to keep these investments running in the future, zero tax on capital gain should be employed. This belief is reputed by the argument that most of these taxes are paid by working-age ad ults who are saving for their retirement. Therefore, they are going to save regardless of the fact that their savings are being taxed. Some economics argue that the conventional view of taxes has been ignoring inheritances. Taxing hard workers who have earned their income due to their ability seems to be unfair as those who have done nothing to earn their income are exempt. Messrs Piketty and Saez found out that the capital-output ratios