High Income Taxes

Economics Economics Questions
1

Are high income taxes that bad from an Austrian perspective?

Usually the concern is regarding “incentives to work”, but Austrians know that incentives don’t mater that much. People in socialist countries generally work harder than those in capitalist countries. It’s not about incentives, it’s about calculation.

So as long as the economy is deregulated, and calculation can happen because capital assets aren’t actually operated by the state, it wouldn’t have great ill effects to pay like 70% in taxes to get get food, schooling, medicine, etc. through a voucher system, right?

I’m talking about the economic implications, not the moral ones.

2

Did your account get hacked by a troll?

3

Yes. Income taxes are distortionary to the economy. They are even bad from a Keynesian point of view. The least bad tax that an economy can have is a flat tax. A tax that everyone has to pay regardless of their activity and it is the same for everyone. Something like a poll tax. It introduces no distortions into the economy.

4

Well there would be no competition, or profit motive in a socialist system, so innovation and efficiency would suffer, thus the economy would be stagnant.

5

But that’s all about incentives. What if we leave incentives out of the equation?

6

This is simply absurd. Please give an example of which socialist countries and which capitalist countries you are referring to that brought you to the conclusion that socialist countries work harder.

The evidence shows that if we had to pay 70% tax for food and other now private goods and services, the quality and selection would go down. The economic implications is that the industries would stagnant and because of lack of incentives from the socialist workers, they would not innovate.

7

Where would the money come from for new investments/expand the business/increase production if 70% of it was thrown away?

8

Lol, whut?

9

So long as the rich spend a smaller proportion of their income and save/invest a larger portion of it then in the long run they are raising living standards. If they are spending a larger or equal proportion of it then fewer people will probably be harmed with a very progressive income tax than with a regressive/flat tax. At any rate, so long as the rich save more, something that they’ve done throughout history, then there will be a smaller amount of capital accumulation.

Also something that’s very important is that the “nouveau riche”, are the most likely to have directly earned their money and most likely to directly invest it into their businesses, which means an increase in “class mobility” (whatever the hell that actually means but I’m sure that the leftists will like it) and more importantly more new innovative firms which will see wise investment from the people most involved, wheras they would have otherwise seen their funds confiscated.

Thusly we can see that it hurts long term living standards and helps to keep big companies monopolized and sheltered from outside competition. It should also be noted that one of the most undesirable aspects of any type of taxation is not what it takes, but what it gives to the government.

I personally support a slightly graduated income tax, not for any moral reason but because as so long as there is taxation then those who can most afford it the most might as well experience more of the pressure.

10

I think its unlikely that an increase in income tax would reduce consumption over savings, especially at the higher end of the spectrum where income is so high that its hard to spend it all, it practically has to be saved.

But even if it was that case that you could effectively tax 70% of the income at the top bracket without reducing their savings, money spent in the market is still able to be invested more efficiently than it could when spent in the public sector. $1 billion spent on high end electronics brings the possibility of investment in that field potentially lowering prices and raising the standard of lving. The same money spent on high end military weaponry doesn’t really do the same thing.

11

People in socialist countries generally work harder than those in capitalist countries

Perhaps you mean that socialist countries tend to be backwards and many people are forced to use subsistence agriculture to survive, and hence the work they do to survive is tougher…

12

Remember, when you’re having such thoughts, you need some extra Friedman in your system:

13

@OP: Actually, I think you’re right to a large degree if you are measuring the “implications” solely in terms of individual well-being without respect to his family, community and his offspring (inheritance, captial accumulation). The Euro model works, as far as it goes. The problem is not that people won’t be well-fed, clothed, housed and so on. It’s that they’ll never be able to accumulate capital and bequeath it to their children, they’ll be reliant upon the sanitized, impersonalized State system of support rather than relying upon family, friends and neighbors.

So, it’s really the social consequences that are at stake here, not merely the quality-of-life. Do we really want a society where our best and brightest are squelched to the same envelope of inter-generational achievement that our most mediocre are? I have a quick test of whether a society is truly free and every modern society I can think of fails it: 1) Is polygamy legal? 2) Is prostitution legal? 3) Is divorce legal (not just nominally legal as in Western countries)?

Why these three questions? Because they get right to the heart of what freedom is really about… the freedom to succeed (polygamy, prostitution) and the freedom to fail or make mistakes (divorce). Evolution has only one measure of success: biological reproduction. If that measure of success is squelched by enforcing reproductive egalitarianism (one man, one woman), there will be unforeseen consequences. You are distorting the ordinary course of Nature: those organisms that best succeed at harvesting the available energy within nature generally translate that success into surviving offspring. To translate this into human language: Wealthy men have many wives and produce many children. But modern Western society futilely attempts to rewrite the rules of Nature to suit our bourgeois tastes.

Now apply that line of thought back to your little high-income-tax, VAT-taxed Euro-Utopia. Even if it “works”, it’s still egalitarian, it squelches the big successes and prevents them from doing what they naturally ought to do… produce lots of successful offpsring who will improve our lives with whatever it was that made their parents successes to begin with and improve future generations by spreading whatever genetic component there is to that success.

To make matters even worse, there is a darker side to this distortion. Not only are you preventing the natural elites from reproducing, you are diverting their energies to support the offspring of the ruling elites. Are we to believe that the entirety of that 70% of taxes goes straight back into the public’s pockets? Of course it doesn’t. Instead, a nice cut goes off to the bureaucrats and administrators and to the revenue columns of private-sector cronies who “bid” for the government’s contracts to produce whatever that 70% is supposed to be buying.

In the process, those who produce are forced to pay for the offspring of those who engage in political parasitism. This is an organized form of cuckoldry. The bureaucrats and administrators raise their lone child and send him or her to the best university that money can buy, all on the public’s dime. Meanwhile, the Elites that own all businesses that “bid” for the government’s contracts (and always “win” the bidding) raise their nest at home and spread their seed far and wide. The children born will be raised on welfare (cuckoldry of the general public) or the woman will find someone to marry and support her and her child (cuckoldry of an individual) or - worst of all - she will simply work and raise it herself.

So, this idea that taxation that goes 90+% back to the public doesn’t really hurt anything is the result of an overly-narrow focus on individual well-being. Human beings are social creatures and we exist in a biological context. All of that matters. You can’t just fuck with it however you like and not expect Bad Things to happen. We’re in the process of breeding a virulently anti-social, paranoid, malevolent future society… the parasites that are pillaging us are the ones with the greatest wealth and, therefore, the greatest reproductive success as a group. This amplification of the parasitic element within human behavior will become self-cannibalizing at some point. One thing is for sure… no society built on Euro-utopian ideas will last. It will rot from the inside and eventually implode in an orgy of violence and destruction.

Clayton -

14

@mikeachusetts

When you’re saying “saving” in this instance are you equivocating it to investment?

15

@Neodoxy,

I was.

16

Well then of course it would shift the consumption savings ratio. If we have the government confiscate 50 percent of the income of the rich and spend it, because that’s what happens to the overwhelming majority of money provided to the government, then the saving/spending ratio will be greatly changed, whereas if revenue comes out of the pockets of the poorer classes then spending is diverted from other areas but the ratio probably isn’t going to change nearly as much as it would in the case of taxing the rich.

17

Thanks to all responders! Your comments have been appreciated.

@Wheylous, Jack Roberts, James:

Yes. Or generally, would you say that people in the Soviet Union had a more leisured lifestyle than people in the US? Clearly not! Life under socialism is hard. I find the whole “incentives to work” argument to be a strawman. Capitalism isn’t more productive because it incentivizes people work harder, but because it allows for economic calculation. That produces capital goods and technology, so people have to work less.

@Smiling Dave, Neodoxy, mikachusetts:

High taxes to finance government services would shift resources towards current consumption rather than future growth, eliminating capital accumulation and necessarily making society poorer. Money owned by the rich isn’t just sitting there. It’s in some hedge fond, meaning it buys resources for some productive project that raises the standard of living. That’s why the money that’s owned by the rich basically represents resources that are withheld from current consumption and invested in the future. Expropriating that money almost by definition shifts resource use away from investment and towards consumption.

I didn’t know Friedman was such a supply-side economist. But I like it. And it nicely points out the error in my original line of thought. Government can not create resources out of thin air, it can only give to people what is being produced by the capitalist economy in the first place. So at the point where government can provide, say, food for everyone, society must be able to produce this much food anyways. So it would be pointless for government to provide it, because people could afford it in a market system as well. Prices would just go down to where people could afford it, where else would all this stuff go?

@Clayton:

Yes, I think I agree.

18

People in socialist countries absolutely work less than people in capitalist countries, all things equal. The work they do may be more strenuous, based on more backwards technology, less productive, etc, but as anyone who has actually been to any socialist country can verify with their own two eyes, they will do less of it. Not even debatable, really.