That I'll accept. Still working on my response.
Post so far:
This question as presented to the IGM yielded widespread agreement that in spite of acknowledged re-labelling capital taxes should be lower than labor taxes.
See here:
http://www.igmchicago.org/igm-economic-experts-panel/poll-results%3FSurveyID%3DSV_6MzyqvYPzrjhYvb
I can in no way find Krugman's position:
In short: the low tax rate on capital gains is bad economics, even ignoring who it benefits
as anything but itself bad economics and simple political posturing.
The re-labelling argument as presented is poor. There's a fallacy of composition at play: just because relabelling occurs doesn't mean that all capital income is relabelled labor income. The magnitude matters. What is it? If I may use an estimate of the savings from carried interest loophole from the Tax Foundation here taxfoundation.org/blog/carried-interest-debate-mostly-overblown . It's tiny. $3bn a year max.
Same with pass-through entities. Due to the high cgt rate, taxfoundation.org/article/eliminating-double-taxation-through-corporate-integration increased use of pass-through entities are not necessarily bad.
What is the magnitude of this deadweight loss, if any? You have some evidence from Kansas(Brownback's tax cuts) but nothing that substantial.
The reduction in government income was $208M (1.3% of the government budget). The deadweight loss? I don't know but certainly not excessive to the extent necessary for Krugman's hyperbolic point.
The re-labelling argument absent distributional effects has a second flaw. Reducing taxes on labor income isn't economically 'bad'.
Krugman has this well-sourced Anrig piece to back him up (and a metric shittonne of personal ethos).
I have to be blunt about your Anrig reference. It's poor. Anrig is not an economist; The Century Foundation is an acknowledged prgressive foundation and your specific reference a blog post.
And it's not well-sourced. It doesn't address the economic literature in any credible manner.
Specifically:
Reforming the tax code to abide by the simple principle that income from investments should be taxed at the same rate as earnings from work would greatly enhance the fairness of the tax system while eliminating myriad economic distortions.
This is balls. C-J, A-S, Prezworski and Wallerstein all indicate the principle is far from simple. My IGM link above should also make this clear.
His analyis as well...
- Only the rich would feel the bite.
... ... ...
Capital and labor are complimentary goods. There is an effect on labor income that needs to be addressed. There is a change in incentives to hide or delay gains that needs to be addressed.