I wrote a post about optimal taxation of capital income which (the web is sometimes wonderful) was made legible by the blessed [person who choses to remain anonymous].

But that was back in Obama center left 2008. I want to update given what I learned since then and given the appearance of socialist US citizens.

First, what I should have known already is that the standard Judd 85/86 result that the optimal rate of taxation of capital income goes to zero as time goes to infinity is what mathematicians call a boo boo (oopsie). The asserted theorem is false as explained by Ludwig Straub and Ivan Werning.

This is an interesting event in the history of thought and the sociology of economics — a standard mathematical result which is simply wrong. It is especially interesting as the proof that Judd made a whoopsie was published years ago, yet the false alleged result survives. One might almost suspect that ideology or class interest is involved.

The key issue is that Judd considered tax rates which change over time and their incentive effects and then casually assumed that the public sector budget is always balanced. I guess he guessed this was OK because of Ricardian equivalence which says that. given a long list of implausible assumptions, the timing of *lump sum* taxes doesn’t matter, so the timing of taxes only matters because of incentive effects.