Comment by bencpeters | Hacker News Reader

Comment by bencpeters | Hacker News Reader

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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.

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