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Let me accept the premise that when you raise taxes on people, not only do you not discourage work effort, but that you also encourage it. That is the folk view of many people new to economics. I can see why folks might think this – for them, they might have a “target” income in their heads, and then spend as much effort as they need to make sure that they get there.

Let’s not dispute this. Instead, let’s go back and ask what this has to do with taxing the rich more? What exactly does this say about taxing the rich more? As far as I can see, such an argument could just as easily be used to defend very repressive regressive taxation! Seriously, if work effort is not discouraged, indeed if it is encouraged by increased taxation, isn’t there considerable inequality in leisure time between the low income and high income? Isn’t the problem among the lower income population that they do not work enough? SO by taxing them more, not only do you discourage them from being the shirker that I was in choosing teaching as a profession, but you also don’t lose any tax revenues since they’ll all just work harder to “make up for it.”

It’s incredible how easy a time people have justifying taxing the rich using this line of thinking and not considering the logical implications of it.

Here are the previous entries in the series:

6 Responses to “Taxing the Rich: An Idea”

  1. Rod says:

    Another populist theme is to tax bad behavior, starting with high taxes on cigarettes. The idea is that nobody would smoke if the taxes were high enough, but at some point the revenues to the government decline, defeating the main legitimate reason for taxation, to raise revenues for such essential things as national defense as well as for nonessential things like implementing and sustaining the regulations of Dodd-Frank.

    There’s no limit to the number of things one could tax on the grounds that the taxes are good for you. Potato chips, beer nuts, beer, or anything associated with watching football could all be taxed. I’ve got a little list.

  2. Harry says:

    The argument is a fallacy, and I am not going to spend any time explanning why.

    Unless we promote economic growth, which means fewer burdens on investment, we will never be able to generate the wealth to allow us to endure. Every attack causes damage, sending the pension funds like Calpers and others down the whirlpool, where more public funds are required to be taken in taxes, which have to come at some point from the beneficiaries. When the wealth is going down the drain, it is time to do something different.

  3. Harry says:

    Add to that the quandary all public and private definined-benefit funds have found themselves in, not just Calpers. When the government attacks through taxation and regulation the institutions in which their pension funds are invested, the earning power, and often the market value of the funds they depend on is shattered. Then these pension funds have to look to the state to make up the difference.

    Would that the powers that be pursue growth, promoting investment and savings, with lower taxes, less regulation, and less wealth going down the drain, all of those public pension funds would appreciate by a few trillion dollars, and maybe we might have not to worry about extracting all of the wealth of Bill Gates and Warren Buffet, which, by the way, is all on paper, with a pittance of $80 billion in cash.

    Thirty years ago Warren Buffet bought Coke. That was not the best idea around. I will give him credit for Geico, and maybe Burlington-Northern Santa Fe, but some might think he overbought. Everybody burps along the way while using other people’s money.

  4. Harry says:

    If my memory is correct, in 1982 Ronald Reagan got tax cuts enacted in Congress, pushing the top rate down to 28%, but all the rates were “phased in” because David Stockman, a straight-line economist just like Fritz Hollings, insisted on it. Everybody I knew got a big raise, and very quickly prosperity returned.

    In 1986, the tax code was changed again, with the top rate being pushed up to 32%, part of a compromise with Tip O’Neill. For my own tax return, it did not change the answer much, but it did change my attitudes toward realizing capital gains, especially for clients, if not me immediately. After all, you have a more difficult decision if you are going to sell something for $100, and put the $70 you have left in a better situation, assuming you thought about selling the IBM or GE stock, of which you held 4000 shares at a cost basis of $3 per share would mean.

    These were not rich people by any standard, but even if they owned 4,000,000 shares, good for them, and why should not whatever capital gain they realized not be indexed for inflation before it was taxed, even at 28%?

    By the way, I do not care whether anybody works more or harder; that is their choice, and they have no duty to me or society in general to work. It is OK to live the life of the Unibomber, as long as you do not murder and maim professors who disagree with you on peculiar ideas.

  5. Harry says:

    My apologies for pointing out the fallacy and implying that WC did not agree.

    Going back one WC post, WC speculated on how much taxation he had deprived the rest of us of by choosing to work as a college professor as opposed to becoming an investment banker like John Corzine or Tim Geithner. If Wintercow made $15 million a year taking his cut of all of those deals, including the trillions of municipal and state financing, he would surely have paid far more in income taxes than most of the readers of this blog would hope to pay, with a few exceptions that may include some people who employ tens of thousands of people.

    I made a comment that I did not care how much money anybody made, including the Unabomber holed up in his shack, and upon further reflection, want to qualify that, to make sure that WC understands that I do not want to place him in the same class as the Unabomber, even though both have written extensively about environmental subjects. Indeed, had the Unabomber not been apprehended, the author of The Unbroken Window may have been next on his list to be rubbed out.

  6. […] If people respond to higher taxes by working more … then let’s tax the poor more! […]

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