Something I don't understand that is sure to get me flamed

[tim]

So there's this idea that if we increase taxes on the rich, then rich people will stop working so hard (that the rich work hard is already questionable, but let's go with it) and, I don't know, stop producing all the social goods that rich people produce.

I mean, I think it would be great if just increasing taxes, by, say, 2% on household income above $500,000/year would make some of those high earners say, "Goshdarnit, it's not worth it for me to earn this much money if the government is just going to take it away. I better get a job teaching in an inner-city elementary school instead, brb." But somehow, I don't think that's going to happen.

Is it *really* that easy to stop people from being greedy? I'm not sure greed would deserve its deadly-sin status if it was that easy to eradicate.

And while I'm at it, what's up with accusations of "class warfare"? Rich people have been waging war on everyone else since, oh, whenever it was that some people started being rich. (In fact, that's how you get rich in the first place.) The rest of it is just class self-defense.

Comments

[asrabkin]

The usual claim is two-fold.

First, that if you increase marginal tax rates, this will encourage high-productivity rich people to retire early, or work less. Think doctors and lawyers and such. Where they might work that extra 5 hours a week in exchange for $300 after tax, but not $200 after tax.

Second, that as you raise marginal tax rates, people will spend more efforts sheltering their income from taxation, rather than working productively. It's not that the taxes make them less greedy, it's that the taxes make them greedy in ways that are less socially beneficial.

[juli]

It seems to me that only claim #2 has any even theoretical merit, since there are other people who are willing to earn the money the rich people would discard in #1, and that even if those people are not mega-rich and so the government is going to get less of a cut of that money, that's probably not really a net loss to society. What, exactly, is the harm?

[anemone.livejournal.com]

I'd guess the argument would be that if they don't make that $200 or $300, they can't spend it on hamburgers at McDonalds, so there are less McDonalds employees, and so fewer jobs.

[juli]

I don't think that's actually the argument at the levels we're talking about. We're talking about money whose benefit to society would have been in its taxation, investment or charitable donation, not walking-around money.

[anemone.livejournal.com]

Well, home improvement money, then. You can spend vast quantities of money on making your house prettier.

[juli]

And, my experience has been, rich people who can work to perform such a task will do so, rather than dipping into cash reserves or, worse, cashing out investments. Having a lower net earning rate isn't ever worse than messing with investments. Unless the person is disinclined to work anyway, in which case I doubt they need an excuse. People who want money for something specific generally go for it. People who make money they don't need generally stash it away or use it to offset gains elsewhere (i.e. charity), rather than finding uses for it.

[sethg]

Rich people save/invest a larger proportion of their income than poor people. So if you took that $200 or $300 from a millionaire and gave it to someone making minimum wage, more money would be circulating through the economy.

[asrabkin]

The harm is that each time an expert doctor that decides to play golf, or each time a skilled programmer decides to work less, this decreases the supply of their services. And this will decrease the net quantity of labor of that kind supplied to society.

[tim]

But who's to say that the value of services supported by taxation (for example, public education, to create more great doctors and programmers, some of whom may be motivated by love for their work rather than money) is less than the value of services that may be withheld by greedy professionals? It seems to be that this argument doesn't work unless you accept that income determines a person's value to society.

[asrabkin]

I don't see why the argument makes any assumption that income determines value. The argument is that we're foregoing some real value when high-income workers work less, because there's some quantum of productive work that they could have done, and didn't.

I agree that government revenue is also potentially useful to society, depending on what it's spent on.

But I don't know how to quantify or measure "value to society." Absent some way of actually quantifying, measuring, or even describing what the opportunity costs are on both sides, I don't see any way to meaningfully discuss which cost is bigger.

[juli]

Value to society, I think, doesn't necessarily need quantified. Indeed, that it can't may be a useful point of argument. "We can't determine whether rich people working another half hour a week help society at all, let alone in which amount, and rather than putting our faith in an unknowable black box, we will risk that in favor of something knowable, like feeding starving people or saving lives."

[sethg]

Why would the doctor respond to the higher taxes by playing golf and not by negotiating for a higher pre-tax income? (What proportion of health-care expenditures in the US actually ends up as doctors’ taxable income?)

And given that a lot of consumer spending in the upper income brackets is “keeping up with the Joneses” (if all my neighbors and fellow-doctors drive Beemers, I would feel inadequate if I drove a Mazda), if the after-tax income of an entire economic class shrank at once, would anyone really have that much incentive to drop out of the work force?

[sethg]

Matthew Yglesias once observed that this argument would be a lot more compelling if the people at the very top of the income scale were, say, brain surgeons. OK, if the supply curve for brain surgeons moves down a bit, some of the top brain surgeons would retire sooner, etc.; some people who would really benefit from a top brain surgeon would have to settle for a second-tier surgeon, people who need a second-tier brain surgeon might have to wait longer for one to be available, etc.; we could then talk about whether this sort of social cost makes up for the benefit of whatever higher taxes are paying for.

But in the real United States, the people at the tippy top of the income scale work in finance. If investment bankers are suddenly faced with a marginal income that amounts to $3500/hour after taxes instead of $4000/hour, they’ll... what? Do such a sloppy job of banking that their employers are on the hook for billions of dollars in bad debt that the government has to cover lest the whole financial system collapse?