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What is the justification for taxing the wealthy disproportionately to their income? Is it out of moral need, financial expedience, or economic efficiency?

If you wish to tax them out of moral need, you hold a normative belief which is unlikely to falter, so I will not challenge it.

There is no financial reason why a 'progressive' income tax is better than a flat tax, as the 'progressive' system encourages evasion, and makes it easier, as well as greatly increasing the scope of government, requiring regulation of marriage and more.

Economically, the 'progressive' income tax is completely unjustifiable, as the wealthy invest disproportionately in economic (and job) growth, while lower income people spend more on consumption goods.

Your idea of borrowing money by way of government securities is not a long term solution, because interest gradually becomes an increasingly large part of the budget. In the long term, interest will either gradually take over the entire government budget, or an interest rate increase will force the government to default; in either case, borrowing to finance regular spending will eventually fail as a policy.

The 'inflation argument' against welfare policies is flawed as you point out, because it has never been demonstrated that wage increases cause inflation (so called "demand-pull inflation"). Whether or not some type of government welfare program should exist is an interesting question, and your answer seems to presuppose that the counter-factual is that there would be no social assistance program at all, whereas I would think that private charities would do a better job than the government, while avoiding coercion. If you require a government welfare program, I agree with you that a negative income tax is probably the least harmful, as it does not encourage unemployment.

One argument I would make is a marginal utility one - the marginal utility of $ decreases dramatically at higher incomes, so even if you have a (comparatively) punishingly high tax rate on the rich, the amount that your tax is affecting their lives in real terms is lower due to the marginal utility of money at those incomes. I'm in the camp that it's reasonable to want at least some semblance of equality of outcome though, so this argument resonates with me in a way that it might not to someone who favors a more lassez-faire approach. This probably falls under your "moral need" umbrella.

I don't agree with your statement about a progressive income tax being economically unjustifiable, especially in the economy that we find ourselves in at the moment (and, if secular stagnation proponents like Larry Summers and Paul Krugman are right, may be the structural norm these days). The current economy is strongly demand constrained, with plenty of money available for investment (corporate profits and cash holdings at record highs), but inadequate consumer demand to justify investments. From this perspective, a progressive transfer of wealth down the income scale makes a lot of sense economically because the poor are much more likely to actually spend that money than the rich are. There's also not much good evidence that high end tax rates affect macroeconomic growth as much as people claim - just in the US we've had tax rates all over the map over the past 100 years, and there's not much correlation with economic growth. We certainly haven't seen any miracles of economic growth for the economy as a whole since 1980 with the long running supply side, deregulation, and low tax experiment. If taxing the rich really has such a strong effect on economic growth and job creation, it's hard to see that in the data...

Finally, interest on government debt only becomes a long-term problem if the rate is higher than the rate of growth. It's not clear to me that that has to be the case, but that's another discussion ;)

The marginal utility argument you make is fair, but my question would be: marginal utility to whom, and when? The poor person who receives a government payout does benefit immediately, but poor people would benefit in the long term if that money had been invested in a job (and wealth) creating venture. This seems to me a difficult trade-off, and not a clear argument for or against welfare; my criticism of your argument here is that you presuppose an unlikely counter-factual.

You say "the poor are much more likely to actually spend that money than the rich are", but there is no evidence for the idea that poor people are less likely to hoard wealth than the rich. Rich individuals allocate their wealth to longer-term investments, whereas poorer people spend their money on consumption goods; both of these allocation systems allow the money to circulate in the economy. The notable difference is that the long-term investments create jobs in the long term, in exchange for forgoing consumption in the short term.

You're making the assumption here that the only way that money can be invested in a "job (and wealth) creating venture" is for the rich to make long term investments. Furthermore, you're assuming that taxing the rich more would decrease their job creation efforts and thus lead to less economic growth.

I don't think that these are valid assumptions. You're basically making a "trickle down" argument (if the rich do better, their heroic efforts will create so much economic growth that everyone benefits), and I would argue that our economic experience since 1980 argues pretty convincingly against that. In fact, studies on this topic (see http://www.fas.org/sgp/crs/misc/R42111.pdf) find virtually no correlation between top tax rates and overall economic growth, contrary to the belief of proponents of supply side macroeconomics.

I think the burden is really on you (or the supply side proponents) to demonstrate the truth of these long term economic growth claims, rather than just asserting them. In the absence of such proof, I would argue that concerns of economic equality and reduced suffering on the truly poor in our society far outweigh any of these nebulous assertions of promised future economic growth.

Finally, this doesn't have to be limited to a "welfare" vs. "investment" question. Government taking in money doesn't have to just give it out to people in welfare programs; it is perfectly capable of making investments too (infrastructure, basic scientific research, correcting market failures, etc.). There's no reason that a dollar invested by the government in infrastructure creates less growth than a dollar invested by a wealthy individual; in fact, given the propensity for wealthy individuals to park money in investments of questionable social value (see much of Wall Street's activities), I'd argue that the former is actually MORE beneficial to overall macroeconomic growth.

I was not talking about the disincentive effects of taxing income, (though I do believe they exist,) my reasoning was simpler, in that the rich cannot invest the money that the government took away from them.

This is why I made the comparison between what happens with the money if you have a progressive tax vs. flat tax.

But you're assuming here that "the rich" investing money is creating more growth (and you stated earlier, helping poor people more) than the government would.

I think that's a difficult statement to back up in the best of times, although it's certainly a difficult thing to prove either way (moving this question beyond the level of anecdotes is really hard). However, when we've got a persistent demand shortage like we have right now, it's much less of a tricky question because of the multiplier effects of consumer spending.

> but there is no evidence for the idea that poor people are less likely to hoard wealth than the rich

You can't seriously believe that? This is the most out of touch "let them eat cake" statement I've seen in a while. Poor people don't have any wealth to hoard; that's what poor means.

> Rich individuals allocate their wealth to longer-term investments

Because they have excess that can be invested after meeting their basic necessities.

> whereas poorer people spend their money on consumption goods

Yea, because they're poor and basic necessities eat up all of their money.

> the wealthy invest disproportionately in economic (and job) growth, while lower income people spend more on consumption goods

This is a very strong claim that's difficult to justify by the data. Consumer demand is the largest driver of economic growth. Demand is what ultimately creates jobs. Capital cannot be applied to investment or growth if there is no demand to generate a return.

Investment creates demand as much as consumption does, they are just different types of demand. Investment creates demand for capital goods, while consumption creates demand demand for corresponding goods.

The market for capital goods is dependent upon the ultimate demand for the end goods. The cart most emphatically does not drive the horse, as anyone whose made malinvestment of capital can attribute.

>What is the justification for taxing the wealthy disproportionately to their income? Is it out of moral need, financial expedience, or economic efficiency?

One argument I've seen is from marginal utility. To a person with few dollars, one more is quite useful. To a person with a million, one more (or less) is noise. J. S. Mill originally opposed progressive taxation, but may have changed some of his thinking on this subject later in life.

"Economically, the 'progressive' income tax is completely unjustifiable, as the wealthy invest disproportionately in economic (and job) growth, while lower income people spend more on consumption goods."

That's bass-ackwards. All the money in the world can be available to fund companies; if there's no money to realize demand, it'll sit around unused. If there is demand for goods and services, people can borrow money to provide it, to be paid back out of the revenue stream. That's healthy. What we've been doing lately (and more especially pre-crash) is borrowing to consume instead, and as you say, "borrowing to finance regular spending will eventually fail as a policy" - as partly evidenced by the crash.

> You could tax the wealthy heavily

At what % do we draw the line on taxing the wealthy? 35% 40% 50%? These numbers would be outraging to any other section of the populace.

> dismiss all arguments regarding a basic income harming poor people in the form of "inflation"

Scare quotes on inflation? Lower and middle classes feel inflation the most when it affects the costs of basic needs: bread, milk, etc. Those are the very items a basic income intend to give ubiquitous access to. Practically by definition a basic income would raise the prices of those items.

> and took on more debt, hoping this can pay for itself

This is the critical assumption here. There is an ongoing debate whether or not college degrees can even pay for themselves in many areas of study. This is a heavy handed gamble, and one i would be unwilling to risk our fiscal futures on.

Post-WWII (and through 1964), the top marginal income tax rate in the United States was 91%

http://en.wikipedia.org/wiki/Income_tax_in_the_United_States...

While [i hope] no one is suggesting a tax rate of 90+ %, i have to imagine that anything even close to that will result in widespread shipping of jobs and management overseas. Once a few companies do that, how much revenue loss would the states encounter. Substantial, i would think.

I really like this work: http://www.epi.org/publication/raising-income-taxes/

It basically suggests that: a)top tax rates have historically had virtually no significant effects on overall economic growth

b)we are well below the optimal tax rate for maximizing revenues

The authors of the paper on which this summary article is based on go on to suggest an optimal top effective rate of 68.7% as the revenue maximizing point (basically the optimal trade-off between revenue and dampening effects and/or evasion)

I find this work pretty convincing...

I fail to see why. Perhaps you could detail the jobs that would be shipped overseas as a result of this, particularly those that haven't been already?

Further, I don't really see how a high top income tax bracket would affect much. It doesn't look to me like it affects businesses (its not a corporate tax) - only the pay of people at the top of the chain. Are those people going to revoke their citizenship and move elsewhere to avoid the taxes?

It is important to make a distinction between shipping manual labor overseas vs cash stores. Apple came under fire for holding most of their finances overseas, and their argument was one of taxes.

The higher the tax rates go, the more fortune 500's will move their cash to places where it is not being taxed as heavily.

> At what % do we draw the line on taxing the wealthy? 35% 40% 50%? These numbers would be outraging to any other section of the populace.

I'd prefer if we didn't at all TBH, but something that would pass would most likely only be modest.

> Scare quotes on inflation?

More like skepticism. The FED wants inflation[1]. I may not agree with them but I'm not the central planner with a printing press. I doubt we would see prices go higher, as some people would quit the workforce and live poorly living exclusively through MI. Some would stop working full-time (myself included) and figure out the best way to work less for the same amount of money. And most would simply use the money to combat their debt they've collected over the last 15+ years. It helps everyone, including the markets, due to velocity. I'd love to compete against a company who would dare raise prices. Press Releases condemning them, highlighting my lower prices, etc, etc.

> This is a heavy handed gamble, and one i would be unwilling to risk our fiscal futures on.

Well how about we test it before dismissing it[2]?

[1]: http://www.bloomberg.com/news/2013-11-12/fed-s-lockhart-want... [2]: http://en.wikipedia.org/wiki/Mincome

>These numbers would be outraging to any other section of the populace.

These numbers are normal in Nordic social democracies.

> Lower and middle classes feel inflation the most when it affects the costs of basic needs: bread, milk, etc.

Suppose there is a sudden massive increase in demand for basic staples after implementing basic income, isn't that an indicator that our current system + safety net is seriously inadequate? And that people were going hungry?

Really, I think there would be a small increase in demand sized to the backfill of the gap between basic income coverage and our current safety net. Maybe it would give us more leverage to remove some agricultural subsidies.

Depends whether the increase is in price or in quantity. If you give a lot of money to people to buy food, one possibility is that they will buy more food. Another possibility is that they will spend more money to purchase the same amount of food.

We saw this in the housing market. Between 2002-2007, a huge amount of cash went into the housing market in the form of housing subsidies, government-backed loans, interest-only mortgages, tax deductions, and other incentives to encourage an "ownership society". The result was that the home ownership rate increased from 63% to 65%, but the average price of a home basically doubled. And then it all came crashing down when the mortgage bubble popped and people couldn't afford the payments on these inflated prices.

You would still need some bureaucracy to make sure people are not double-collecting, that people stop collecting after death, etc.

Yeah, I was thinking the same. I'm wondering how much of that could be automated, though, through appropriate system design. The IRS knows when people are dead. Presumably, that system could then alert the BIG system to stop dispatching checks.

That's just one solution to one problem in a sea of them, but I think it's a representative example.

People are motivated to let the IRS know when they screw up and demand money, though. People are going to be less motivated to let them know about someone who was simply receiving money.

I agree and hope that bureaucracy can be reduced, though.

There is still motivation to be honest about receiving unwarranted money. Tax fraud is a felony and there are already regulations about receiving unwarranted tax funds.

For sure. In some sectors of our society, that doesn't seem to be enough, though.

Almost like the Social Security Administration?

I never said there wouldn't be overlap with other bureaucracy.

Yes, for the ultra-wealthy basic income is essentially a fixed taxed deduction. I think almost everyone would agree that basic income would provide a marvelous opportunity to simplify things.

Inflation seems like the biggest risk to basic income, but I don't think anyone can say how big of a problem it will be in practice. I think people have already put up potential ways to remedy it as well.

"Libertarian-socialist" sounds like a huge contradiction to me; you can be either one or the other, but they contradict each other. You're either for personal freedoms and individualism (i.e., libertarian), or for "the common good" (as most socialists claim to be).