Thinking more subversive thoughts about whether capital gains really deserve a tax break

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A few weeks ago, The Epicurean Dealmaker declared that:

If any of you PE knuckleheads piss off Congress so much with your lame and pathetic special pleading that they decide to eliminate capital gains tax treatment altogether, you’d better find a deep, dark hole to run and hide in.

I don’t know about Congress, but I do know that this private equity tax battle is causing a lot of people who are generally well-disposed to capitalism to wonder if it really is so smart to tax capital gains at a lower rate than the income people actually, y’know, earn. Here’s Felix Salmon:

The way I see it, when you’re rich enough, you can pretty much always structure your income so that it turns into a capital gain. (In its simplest form, you just found a company with a little bit of money, redirect your income into that company, and then sell the company.) So having a capital gains tax rate much lower than the income tax rate is tantamount to giving the rich a massive tax break – even before accounting for the fact that it’s the rich who generally have capital gains in the first place, and not the poor.

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