A 70 percent marginal rate could help, not hurt, innovation
theatlantic.com
theatlantic.com
I'm from the UK and the 2018 budget's total public expenditure for the 2019/2020 year is expected to be £842 billion [1]. That's £12,757 per person [2] - almost half the average salary [3]. I don't think the problem with our government is a lack of money, and I can only presume the situation in the US is similar.
[1] https://assets.publishing.service.gov.uk/government/uploads/... page 4
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/populati...
[3] https://www.theguardian.com/money/2018/may/12/salary-what-ge...
But the point of a marginal tax rate that high isn't just to fund the government. It's to fight wealth concentration. And even if every dollar taxed is completely wasted, it still serves to keep inequality down and fights the concentration of wealth (and there for power). That's worthwhile.
My view of "good" government spending is to raise the lowest living standards to a place of dignity and security. I don't think the government should be punishing people for succeeding in the markets if they do so legitimately.
Inequality leads to large amounts of the money in the economy being locked away doing very little.
So if we reduce the amount the very richest can siphon out of the active economy and pack away for a rainy day that'll never come (seriously, when is it going to be rainy enough for it to matter to someone making $20 million/yr whether they get to keep $16 million of it or $13 million of it?), we help stimulate the entire economy, almost by definition.
Furthermore, the more people who have enough money to take opportunities for education and entrepreneurship, the more likely we are to have good new small businesses and innovative ideas.
> Furthermore, the more people who have enough money to take opportunities for education and entrepreneurship, the more likely we are to have good new small businesses and innovative ideas.
This is returning to the argument that we should raise living standards, not penalise wealth. I'm on board with that.
These are things that don't scale however. A CEO does not eat a thousand meals a day, or buy a thousand cars a year, or do any of the infinite number of things that circulate money into the economy on the scale of an equal number of poor people
In case A) you have a chef,sous chef, sommolier etc. all making reasonable money.
In case B) you have capital investor making 1.95$/ unit and some kid making 7.95/hr.
In aggregate, who spends what does not have a clearly predictable path through the economy.
https://www.forbes.com/richest-in-tech/#3139c5547316
I challenge you to find a profile there where someone isn't growing the economic pie and instead siphoning resources off. These are (almost) entirely people who started businesses that grew, providing new services.
Further, this notion that wealth concentration reduces liquidity is 100% contrary to economic fact. What do you think the wealthy do with their money? Park it in a huge mattress or swim in pools of gold like Scrooge McDuck? The money goes into capital investments, which map 100% to spending. Either direct R&D, capital equipment or venture, which are all spending, or in the stock market. For every dollar going into the stock market, one dollar comes out and has to go somewhere. Hint; it doesn't go into a swimming pool.
You may not like wealth inequality for personal moral reasons, but don't try to justify them with ill founded economic reasoning.
Where do you think Jeff Bezo's money is? Under his mattress?
It's being put to use in the economy.
If wealth is (more or less) equally distributed, everyone has the same leverage on influencing the necessary democratic vote. If the distribution favors one group of people, they will in turn have greater leverage on the vote.
Note: I am not implying here that wealth must be distributed evenly, to the contrary. I am not even sure that the concentration of wealth onto a small number of people is the core problem. We might be able to live with it, _if_ the legal framework is robust enough and this concentration would be time limited, meaning there is basically no way to create family "empires" existing for decades or even centuries.
That's the fundamental issue though - I think we should structure society in such a way that money cannot buy political power. That way, wealth is just economic - you can hire people, or buy things, but you can't pay off voters or buy political ads or lobby in your interests or bribe politicians.
Money can always buy power. If you can hire people and buy things, you can hire people to canvass for your candidate and you can buy publications to gain greater control of the ideological zeitgeist. That's political power.
But even if you could somehow "structure society in such a way that money cannot buy political power," you still have the problem of what to do now about currently existing problems like inequality. In some ways you seem to be holding out impossible goals and conditions in a way that merely justifies inaction against real problems. Letting the perfect become the enemy of the good, and all that. That kind of thing probably makes the people who benefit from those problems rest easy.
I don't have all the answers. I'm talking about the problem we should be solving, not the specific solution. I can't proscriptively design a society in a social media comment. But I don't think the problem of money in politics is intractable.
> But even if you could "structure society in such a way that money cannot buy political power," you still have the problem of what to do now about currently existing inequality. In some ways you seem to be holding out impossible goals and conditions in a way that merely prevents actual action against real problems.
That's not what I'm doing at all. I'm saying that actions that move in the direction of preventing wealth accumulation are less optimal than actions that move in the direction of preventing money from influencing politics. We need ideals to orient ourselves towards even if the perfect solution is impossible to attain.
> I'm saying that actions that move in the direction of preventing wealth accumulation are less optimal than actions that move in the direction of preventing money from influencing politics.
Well, how do you propose money be prevented from influencing politics? (In a way the preserves present-day extreme economic inequality, something that I'm not at all convinced is something we should endeavor to save).
I'd wager reducing inequality is a problem that's easier to measure and there are better understood actions to accomplish the goal.
But demanding we focus on a problem that we don't know how to solve, and refraining from enacting "less optimal" solutions in the meantime, is an argument for inaction and letting the perfect be the enemy of the good.
You're asking a massive question. How should we stop money from influencing politics? By understanding how money influences politics, and looking for ways to reduce that influence. Lobbying is an obvious example, people with more money should not have their voices amplified in politics, so that could be delegitimised. For less obvious questions like how to prevent the wealthy from funding more biased news, I have some ideas but I don't have a perfect design here ready for you and I don't think some random guy on the internet not being the world's greatest systems designer affects whether money in politics is the problem.
> I'd wager reducing inequality is a problem that's easier to measure and there are better understood actions to accomplish the goal.
First off, reducing inequality is a proposed solution to the problem, not the problem itself. It sounds nitpicky, but that's an important difference because we have to know if successful application of the solution actually solves the problem. We've identified a couple of different problems to solve - corruption in politics and poverty. So, does reducing inequality by highly taxing the wealthy increase the average living standard? I don't think that's a given. There are a lot of factors at play - it would potentially decrease investment capital, disincentivise entrepreneurialism, and the money taken from the rich may not even be enough to make a difference - the idea that the 1% own 50% of the wealth is a bit misleading because much of that value is based on shares in the companies they started, which can't necessarily be liquidated for their paper value and definitely not all at the same time. Personally, I think the idea of "owning" a company is one of the drivers of these bizarre numbers and the existence of billionaires. I guess I'm a bit of a syndicalist in that way - I think equity investment shouldn't exist and companies should not be considered an asset. So if you wanted to reduce wealth inequality, that dubious means of acquiring massive wealth might be a good place to start. But I could bitch about wealth accumulation and representation in an economy with stock markets all day.
> But demanding we focus on a problem that we don't know how to solve, and refraining from enacting "less optimal" solutions in the meantime, is an argument for inaction and letting the perfect be the enemy of the good.
That's a blatantly incorrect argument. You can advocate for increased taxes on wealth, or you can advocate for making lobbying illegal. What I'm arguing is that the problem we need to solve is multi-faceted and fraught with complexity, and the solution may not be straight forward. Reducing wealth inequality is a simple solution that targets a symptom rather than the root cause, so it's liable to be ineffective. It's not even like it's not been tried before - TFA posits that marginal tax was 90% in the 60s yet I'm pretty sure that life is better now than it was then.
To nitpick here a bit, it's funny that you call out his argument as being blatantly incorrect while making a blatantly incorrect one yourself.
There are many things that have contributed to the reasons why overall QoL has gone up and trying to correlate lower taxes to better QoL is absurd, considering we've seen the improvements globally in places with both high and low tax rates.
By concentrating in the hands of an ever-more-intrusive federal government instead?
It's even worse in the US by a considerable margin. The total government spending in the US - Federal, state, local - is near ~$7.5 trillion. That's roughly $22,721 per person. It's larger than the combined economies of Germany and France (with a Turkey or Switzerland thrown in).
We should have gold lined streets, the world's greatest universal healthcare system, high speed rail connecting every major city, trillions put away for social security, and practically no homelessness or poverty.
Also, remember this is income tax. Not capital gains tax. So that means 10 million in salary, not stock sales. About 12,000 people in the US make over 10 million that way, and about 1000 people make over 50 million. This conversation is about an infinitesimally small portion of the population. It's kind of a weird conversation to play out across the news media and campaign ads. "Liberals want to tax you" ads are actually one of those 12,000 people paying the television to shout "please vote not to tax me for your own enrichment" to the other 99.99% of the population. They dangle the carrot of an america dream, implying "One day when you are in the 10 million dollar club you wouldnt want this for yourself, treat me how you would want to be treated," full well knowing that 99.99% of the population will never be making 10 million.
presuming you mean 100% of everything over 10m then yeah, that would be fine.
> Also, remember this is income tax. Not capital gains tax. So that means 10 million in salary, not stock sales.
That's the strange thing. I'd think progressive capital gains tax at a comparable rate would also be needed or directory compensation will be switched to stock instead.
> This conversation is about an infinitesimally small portion of the population. It's kind of a weird conversation to play out across the news media and campaign ads. "Liberals want to tax you" ads are actually one of those 12,000 people paying the television to shout "please vote not to tax me" to the other 99.99% of the population.
It's not just the wealthy that are against taxing the wealthy. I personally don't think it would make a lick of difference, and may even harm the economy in the long run, for the reasons I've outlined in the excessive number of comments I've left on this thread. If it worked I would support it, but I don't believe it would.
Well, lots of stuff is stock-based now because even at current tax rates dividends and long-term capital gains are favored, so the capital income vs. normal income problem is out there with or without a 70% bracket at $10M on normal income.
I would agree that LTCG should be taxed as normal income (though only on real—inflation adjusted—gains, and, with an option to recognize in advance and/or to defer much higher than prior-year income for a limited period to avoid middle class people with modest investments getting taxed like really rich people the year they happen to liquidate a major asset after holding for many years.)
it wont start there, it will start at the normal tax rate, and hit 70% after 10 million.
Let's say I got this all back (from here[1] - I didn't vet these numbers but let's say it's order of magnitude correct - also, this is US numbers, but you get the idea) - is there a better way to spend than this?:
- Pensions $3,238.24
- Health Care $3,438.55
- Education $331.68
- Defense $2,771.78
- Welfare $1,092.87
- Protection $116.15
- Transportation $289.44
- General Government $140.06
- Other Spending $330.44
- Interest $1,008.40
- Balance $(0.31)
I mean - I can GUARANTEE that I don't know how to spend on pensions, or defense, or education/etc better than a professional. I'm not saying they're perfect, but they're CERTAINLY better than me, and LIKELY better than someone with a profit seeking motive.
[1] https://www.usgovernmentspending.com/federal_budget_estimate...
The latter can explicitly profit by winning your business in the market and charging more than their cost to produce.
The latter works better in any industry that is natutally competitive because it's provided in the context of a competitive market which is shaped by consumer choice.
And to suggest that the private sector (worked in FAANG + M the majority of my life) doesn't trade influence, vote for political parties that help them, try to weasel out of work, etc is crazy. There's absolutely no difference.
The only difference is that at the end of the day:
- A private sector worker's job is to deliver a widget that is : amount they can sell it for - cost of production = profit
- A public sector worker's job is to deliver a widget that is cost of production only (since there's no profit).
Is the cost of production higher in government? Possibly. But at the end of the day, the fact that the government isn't targeting how much it can sell stuff for means it's pretty uniquely well suited for items which shouldn't be charged for in the first place (e.g safety, health, defense, security, etc)
The average federal worker makes over $100K a year, and have very secure employment, with formidable protections against being fired, thanks to their collective bargaining agreement.
I don't know where you work, but considering the average compensation of federal workers, and the kind of collective bargaining agreements they have in place, I can't imagine your experience being typical.
Moreover, even well-meaning individuals, who only live to serve, are sometimes not effective at what they do. Consumers being required to pay for the products and services they consume leads to them choosing those providers who provide products and services in the most cost-effective manner, and those who work less efficiently being pushed out of the market and hopefully into a role in the economy they're better suited at.
This evolutionary process of the most efficient producers being allocated capital with which to grow is what is responsible for the massive increases in capital we see in the economy over a longer time-scales, as profit-motivated individuals invest in new manufacturing facilities, software platforms and service models to better compete, which results in the steadily improving quality and value of products offered in the market.
>>The only difference is that at the end of the day:
There is massively more accountability when consumers pay for what they consume, and when they have multiple options in the market.
>>the fact that the government isn't targeting how much it can sell stuff for means it's pretty uniquely well suited for items which shouldn't be charged for in the first place (e.g safety, health, defense, security, etc)
People should pay for the cost of the services that they consume no matter what it is. The only reason something should be provided by government is that competitive markets don't emerge in certain industries, like basic research, crime-fighting, backbone infrastructure and national defense.
I think you believe I'm a libertarian and are arguing against their rhetoric, but I'm not - I still think the government should be responsible for most of these services, but if we're talking about them needing more money I'd say they should tackle the huge waste first.
Oh, and the reason I mentioned that number was to compare it against the average salary because it effectively means the government could employ half the country with its budget (not literally, but as a comparative measurement), which makes the huge number a bit more graspable.
Would any of this be a large percentage of people's income? Sure! But that doesn't have a relevance. E.g. you could give 10 people the entire budget of the CDC ($5.6B) and they have generational wealth. Would I expect them to do as much good as the CDC does? No.
The Valley tech firms are frequently lauded as many positive things, but I've never seen anyone with a clue argue they're efficient. Innovative, competent at executing tech projects, impactful, concerned about social issues, whatever, but if anyone argued they didn't waste vast sums of money they'd need their heads examined. "Frugal" is not an adjective that has ever been associated with these firms not even in their pre-revenue startup days.
Government waste is everywhere, although of course the definition of "waste" depends a lot on your perception of what it's legitimate for a government to be doing in the first place.
Sometimes it's just incompetence. In the UK, it's been common in the past for local governments to do things like pay the same bills repeatedly without noticing they've done so, or they don't bother collecting taxes that are actually owed to them. I'm not sure if that's still a problem these days - I read about it during a previous anti-waste drive.
Sometimes it's due to catastrophically over-optimistic ideas about what government can actually do. The UK runs an entirely nationalised, civil servant run health system. It's also the country responsible for the biggest failed IT project in history, an attempt to digitise the NHS. £13 billion flushed down the toilet and all they got for it was an email system. Is anyone really shocked that a vast government bureaucracy totally failed to implement an IT project yet spent unheard-of sums on failing? No, because government waste is everywhere.
Sometimes it's due to trying to do things that governments shouldn't be doing in the first place. Like many countries the UK went through a "everyone should go to university" drive, a large scale and dubious social engineering project. The government guaranteed student debt and ... guess what ... huge numbers of students studied wasteful courses and built up debts they can never repay. The government has now admitted that if it did accounting like a company did it'd be entirely bankrupt, simply because it'd have been unable to move student debt off its books in the way it did so. The losses on these loans have been astronomical - directly wasted resources.
The marginal rate if you cash out stock and build a house in the SF bay area is 51%. With tarrifs and sales tax, the marginal rate on raw materials averages closer to 67%.
People wonder why there is a housing shortage.
I’d back a higher marginal rate if the brackets were somehow computed over a multi-year sliding income window.
One possibility would be to compute marginal rates on windfalls based on how many years it took to earn the windfall payment.
In the current system, startup employees defer income for years, then get taxed at astronomical levels when N years of income lands all at once.
[edit: Also, most of the tax shelters for the ultra wealthy take multiple years of sustained high income to establish, so simply juicing the max marginal rate is mostly hitting new money, as opposed to passive investors.]
That clearly disincentives innovation.
Taxes wouldn't even need to be raised, just take the funds from the poor performing universities and colleges and move to a German educational model.
Isn't the German model based on assigning people to tracks with very little opportunity to jump out of your track and into another one? Personally, I would hate to be assigned a track that I couldn't move out of if I really wanted to.