Eric Jackson, a former employee of PayPal and now the CEO of the online-investing platform CapLinked, worries that implementing the “Buffett rule” would hurt the pool of investment money available to tech start-ups. His logic on this point is unimpeachable: If the Buffett rule means taxing capital gains more like normal income, then it will, on the margin, hurt investment of all kinds, including investment in tech start-ups.
This is a pretty common way to argue against reforms to the tax code. Most Americans don’t like the idea that someone who makes money by playing the market gets taxed at a lower rate than they do. But they do like the idea of Google. So argue that the tax change will hurt the next Google.
Similarly, most Americans don’t like the idea that as the rich have gotten richer over the past few decades, they have also gotten huge tax cuts. But most Americans do like the idea of small businesses. So if you want to keep the tax cuts for the rich, argue that they help a small number of small businesses which are both taxed at an individual rate and bringing in more than $250,000 in income a year.
But this is a very bad way to defend very broad policies. If Jackson is right, and there is something special about tech investment that we would like to subsidize, then perhaps we should subsidize it directly. That would be far cheaper than taxing all capital gains at a lower rate. Similarly, if we want to do more to help profitable small businesses, we can offer them targeted subsidies, or specific tax breaks. We don’t need to cut taxes on every high-income individual in America in the hopes that a couple of small businesses get caught in the policy’s net.