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Reply #53: Not to mention an incentive killer [View All]

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Iriemon Donating Member (28 posts) Send PM | Profile | Ignore Wed Jul-27-05 12:57 PM
Response to Reply #46
53. Not to mention an incentive killer
Edited on Wed Jul-27-05 01:04 PM by Iriemon
At a 99% (far less for that matter) rate of tax, what incentive is there for someone to create wealth? I'm not working overtime to earn extra money if I have to give 99% of it to the government.

If there is no incentive to create wealth, people won't do it. If people don't create the wealth, there is no tax revenue generated. Then the government doesn't have the money to spend to boost the economy (even assuming, as the author does, that the government is more efficient at investing capital than private persons). The whole theory falls apart.

This theory is full of many incorrect and illogical analyses. A couple:

"It is easier to conceptualize the ultimate consequences of across-the-board income tax cuts if we first assume that the supply side of the economy is "fixed." If such were the case, it would be quite obvious to us that no actual improvement in material well-being overall would be possible for a population that receives such a tax cut. That is to say, the outcome would be the same as that described in the "Everyone a Millionaire!" scenario above where we implicitly assumed that the supply side of the economy was unable to produce any additional output."

A cut in taxes is not equivalent to giving everyone a million dollars, because those with more income benefit more from a tax cut than those with less. Coversely, an increase in (progressive) taxes does not decrease the supply of wealth equally. The wealthy lose more. They lose relative purchasing power, the opposite of the argument the author makes.

"Whenever an individual household is able to increase its disposable income, its purchasing power will either increase, decrease, or not change at all depending on what has happened to the disposable incomes of all other households."

This is not necessarily or even probably correct. To be correct it assumes 1) that disposable incomes is the sole factor in establishing prices, 2) invidivual households purchasing power will also increase or decrease equally relative to the marginal change of other households, not just the overall change. That does not happen if the tax rates are made more progressive (or regressive).

For example, take the author's hypothetical comparison of Gates, Allen and Buffet. Gates earns $1 billion and Allen earns $800 million. After his taxes, Gates' DI is $18M and Allen's is $16M.

The author argues that under his progressive tax system, Gates ends of with more disposable income. Of course. But then the author states: "The comparative bidding positions of all three men within the hierarchy of national income distribution would be preserved." That is demonstrably false. As a result of the taxes, Gates' disposable income is proportionally *less* than what the others make. Gates makes 25% more than Allen, but his disposable income after the progressive tax is only 12.5% greater. This doesn't sound like much, because we are talking about the difference between a 98 and 99% tax rate. The marginal effect is greater with a greater differential. For example, if the progressive tax rate was 0% up to 800M and then 99%, Allen's DI would be 800M and Gates' would be 802M. Gates earns 25% more, but his DI is only 0.25% higher.

That is why the next statement is wrong: "With the Progressive Income Tax, taxpayers do not need to be concerned about the shrinking of their disposable incomes. They can know with certainty that prices will drop to levels they can afford if all consumers have their disposable incomes reduced in a way that preserves everyone's relative 'bidding positions.'" In fact, everyone's relative "bidding positions" are not maintained as a result of a more progressive tax rate.

This is just silliness.
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  -Steeply progressive income taxes... Linette  Jul-22-05 02:47 PM   #0 
  - Bush is confused as he does the reverse: steeply regressive....  dmordue   Jul-22-05 02:57 PM   #1 
  - what nations have had 99 perct?  oscar111   Jul-22-05 03:10 PM   #3 
  - There are some historical examples  Lydia Leftcoast   Jul-22-05 03:05 PM   #2 
  - Kroger needs me to edit him  oscar111   Jul-22-05 03:15 PM   #4 
  - He is trying to say  oscar111   Jul-22-05 03:22 PM   #5 
  - steeply progressive income taxes are the best  dcfirefighter   Jul-22-05 03:42 PM   #6 
  - What a ridiculous load of tripe.  Cloister   Jul-22-05 03:57 PM   #7 
  - Reading problems?  Linette   Jul-22-05 05:46 PM   #8 
  - So you're saying there's no change?  dcfirefighter   Jul-23-05 12:24 AM   #10 
     - You disagree?  Linette   Jul-23-05 07:14 AM   #14 
        - luxury items are not necessarily high-profit items  dcfirefighter   Jul-23-05 08:27 AM   #16 
  - So, what is it you don't like?  bemildred   Jul-22-05 08:55 PM   #9 
  - a few qualms  publius_jr   Jul-23-05 02:08 AM   #11 
  - one more thing  publius_jr   Jul-23-05 02:24 AM   #12 
  - Sounds like maybe you didn't read all of Kroeger's essay  Linette   Jul-23-05 06:31 AM   #13 
     - re:  publius_jr   Jul-23-05 03:08 PM   #18 
  - Lost purchasing power  Linette   Jul-23-05 07:21 AM   #15 
  - The problem is  Cloister   Jul-23-05 08:29 AM   #17 
  - Interesting pile BS  German-Lefty   Jul-27-05 09:02 AM   #47 
     - Savings & Hoardings  dcfirefighter   Jul-27-05 09:21 AM   #49 
     - unemployement tax break  German-Lefty   Jul-27-05 11:21 AM   #50 
     - Clueless=bad, learning=good  Linette   Jul-27-05 02:10 PM   #56 
        - I thought I debunked this already  German-Lefty   Sep-12-05 04:43 AM   #78 
  - We live in a great big world  Indy Lurker   Jul-24-05 10:23 AM   #19 
  - "I'd move Microsoft to Hong Kong"  bemildred   Jul-24-05 12:55 PM   #20 
  - 99% tax on wealthy and nothing on the poor is stupid.  Massacure   Jul-24-05 05:24 PM   #21 
  - 99% tax, Massacure: what if law forbids runaway factories?  oscar111   Jul-24-05 07:07 PM   #22 
     - How are you going to prevent 'runaways'?  dcfirefighter   Jul-24-05 07:29 PM   #23 
        - Actually there are a bazillion state owned corporations out there.  bemildred   Jul-24-05 08:20 PM   #24 
           - they tend to work  dcfirefighter   Jul-24-05 08:39 PM   #25 
              - They would not be as bad as Enron?  bemildred   Jul-24-05 08:43 PM   #26 
                 - BEMILDRED, brilliantly put. Last two re's of yours were just wonderful  oscar111   Jul-25-05 12:09 AM   #27 
                 - "they would fund their goddamn pensions properly"  publius_jr   Jul-25-05 02:32 AM   #28 
                    - SSI is fine. Have some more KoolAid(tm).  bemildred   Jul-25-05 09:42 AM   #29 
                       - how about a Right to Necessities, instead of "right to property"?  oscar111   Jul-25-05 11:18 AM   #30 
                       - These are wonderful things  dcfirefighter   Jul-25-05 11:55 AM   #31 
                       - re  publius_jr   Jul-25-05 04:04 PM   #32 
                          - lockean property  dcfirefighter   Jul-25-05 04:21 PM   #33 
                          - Ah, intelligent conversation, a veritable feast yet.  bemildred   Jul-25-05 06:29 PM   #34 
                             - disincentive to work  dcfirefighter   Jul-25-05 11:21 PM   #35 
                             - Well, calling it "stealing" doesn't really help your argument.  bemildred   Jul-26-05 09:18 AM   #38 
                                - at a loss.  dcfirefighter   Jul-26-05 08:31 PM   #42 
                                   - I just don't see the distinction you are making.  bemildred   Jul-26-05 08:45 PM   #43 
                                      - you don't have to convince me  dcfirefighter   Jul-26-05 10:28 PM   #44 
                                         - The earned vs unearned income distinction.  bemildred   Jul-27-05 08:12 AM   #45 
                                            - Unearned Income  dcfirefighter   Jul-27-05 09:05 AM   #48 
                             - many incentives to labor, other than thrt of extrm poverty  oscar111   Jul-26-05 05:42 AM   #36 
                                - So logical, so obvious, so true oscar111  fasttense   Jul-26-05 06:30 AM   #37 
                                - An interesting question that.  bemildred   Jul-26-05 09:31 AM   #39 
  - My comments  djohnson   Jul-26-05 10:28 AM   #40 
  - I'm pretty sure ...  bemildred   Jul-26-05 04:28 PM   #41 
     - That would be 80% income tax at 5,000,000  djohnson   Jul-27-05 11:55 AM   #51 
        - Neither can I, but I can assure you that such people exist.  bemildred   Jul-27-05 11:58 AM   #52 
  - let's not forget the black market aspect  unblock   Jul-27-05 08:40 AM   #46 
  - Not to mention an incentive killer  Iriemon   Jul-27-05 12:57 PM   #53 
  - I tend to look at things from a labor perspective  djohnson   Jul-27-05 01:26 PM   #54 
     - Also need entreprenuers and executives, IMO  Iriemon   Jul-27-05 01:49 PM   #55 
        - The 99% figure threw me through a loop  djohnson   Jul-27-05 02:16 PM   #57 
           - Sounds like you guys didn't read Kroeger's article either  Linette   Jul-27-05 02:30 PM   #59 
           - OK, but the inference he then makes doesn't follow.  Iriemon   Jul-27-05 03:10 PM   #62 
           - Labor doesn't invest; take risk; innovate; or manage.  Iriemon   Jul-27-05 02:39 PM   #60 
              - IRIEMON: 2 errors:Poor not pay: "take risks, innovate et"  oscar111   Jul-27-05 03:10 PM   #61 
              - That is why I said "generally"  Iriemon   Jul-27-05 03:33 PM   #65 
                 - Entrepreneurship, Labor, Capital  dcfirefighter   Jul-27-05 03:57 PM   #68 
                    - Whatever labels you want to use ...  Iriemon   Jul-27-05 04:01 PM   #69 
                       - You and I both agree on that  dcfirefighter   Jul-27-05 04:48 PM   #70 
                          - No problem with that; tho' upper rate needs to be increased IMO  Iriemon   Jul-27-05 05:16 PM   #72 
                             - An estate tax is a tax on wealth  dcfirefighter   Jul-27-05 06:24 PM   #74 
                                - Isn't all tax a tax on wealth?  Iriemon   Jul-27-05 07:40 PM   #75 
                                   - no argument there  dcfirefighter   Jul-28-05 10:55 AM   #76 
              - No...  djohnson   Jul-27-05 03:10 PM   #63 
                 - "Poor" and "labor" are not the same thing  Iriemon   Jul-27-05 03:39 PM   #66 
  - Deleted message  Name removed   Jul-27-05 02:25 PM   #58 
     - SDJohnson: "labor drives the econ, not executives" paraphrase  oscar111   Jul-27-05 03:28 PM   #64 
        - If you don't stimulate the guy who makes a million,  Iriemon   Jul-27-05 03:48 PM   #67 
           - Have you ever met a rich person...  Linette   Jul-27-05 05:11 PM   #71 
              - Most folks consider the risk/reward tradeoff of an investment  Iriemon   Jul-27-05 05:44 PM   #73 
  - If 99% is good, then 99.9% is better and 100% is just right.  hunteky   Sep-09-05 06:29 PM   #77 
  - Fair Tax  MSpike   Sep-12-05 07:09 PM   #79 

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