For four out of five Americans, earnings from capital gains amount to well under 1 percent of annual income.  For the richest one percent, on the other hand, these gains from investments amount to over a third of their income and for the top tenth of that one percent, about half their income.  No surprise, then, that these gains are taxed at much lower rates than ordinary wages.  And no surprise that questions have been raised about the wisdom and justice of that differential. 

When liberal politicians raise those questions, they are of course waging class warfare.  When Laurence D. Fink raises them, he is, well, he is Chairman of BlackRock, the world’s largest asset manager, overseeing something approaching $5 trillion of investments.

Last week Mr. Fink sent a letter to the chief executives of Fortune 500 companies.  His basic point was that instead of using corporate earnings to build up productive capacities—like “innovation, skilled work forces, or essential capital expenditures necessary to sustain long-term growth,” he wrote—too many corporate leaders were buying back stock and paying out dividends, even with borrowed money, to please shareholders and aggressive investors with quick returns.

A major incentive for this short-term outlook, Mr. Fink argued, is the capital gains tax advantage. 

He proposed that gains on investments held less than three years be taxed like ordinary income and gains on investments held less than six months be taxed at still higher rates.

“U.S. tax policy, as it stands, incentivizes short-term behavior,” he wrote.  “Since when was one year considered a long-term investment?” he asked, as the current law provides.  Naturally, his letter avoided incendiary language, but in conversation with Andrew Ross Sorkin of The New York Times, Mr. Fink suggested “we’re currently living in a ‘gambling society.’”   

Mr. Fink’s proposal is anything but radical.  It does not address many important questions of either efficacy or equity surrounding lower tax rates for capital gains.  He would not only retain them for investments held longer than three years but gradually decrease them for each additional year of ownership, “potentially dropping to zero after 10 years.”  The goal would be revenue neutrality, not any of the egalitarian objectives that many people feel are badly needed. 

In The Times, Sorkin points out that this scheme is quite in line with BlackRock’s own long-term investing strategy and that, in any case, the idea “has a low probability of ever happening,” presumably because it steps on too many financial and political toes.

But William A. Galston and Elaine Kamarck, on a Brookings Institution blog, write, “When the head of the world’s largest investment fund raises fundamental questions about U.S. corporations, we should all pay attention. …

“We can argue the merits of this idea, and we should. But the main point should be beyond argument. We need more builders and fewer traders, more Warren Buffetts and fewer Carl Icahns. And to get them, we’re going to have to change the laws governing corporate and investor behavior. Fink has opened up a crucial debate, and it’s time for Congress and presidential aspirants to join it.”