The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then.
Try to actually understand the totality of the circumstances you're talking about.
Too many people think they have just-so solutions to a problem they can't even characterize in any useful way. Please don't add fuel to the fire. The problems facing America can not be reduced to a misunderstood slogan or the name of a president or a street name or a single policy strategy. "Fight for fifteen"-ism and "the one per cent!"-ism do not magically make ordinary Americans richer. The catchier it is, the more likely there is a hidden beneficiary you aren't considering.
> I'm aware. (I lived through those days, and was in law school and newly in practice during the Reagan tax cuts.)
So yes, like most people here, you did not personally file taxes as a one-per-center before the Reagan administration. Nobody here is expecting you to muse accurately on pre-Reagan tax filing and how people accounted for their wealth.
Just remember that nobody pays marginal rates on any money, ever. The deduction structure changed with the rates, as happened for FY 2018. The relationship between marginal rates and revenue/liability is modulated by deductions.
> Please explain how this is relevant to individual incentives and the "emergent behavior" that they create.
I'm saying that the "incentives" you cite (marginal tax rates you arbitrarily consider to be low) probably don't create that behaviour, because those same people have actually been paying about the same amount of tax this whole time; with the difference mainly coming in the form of subtle differences in compliance and in the way that people account for wealth.
If you want to tax the caricature baron-type people you seem to be talking about, make playing by the rules as cheap as the creative strategies they inevitably and understandably employ when nominal marginal tax rates are higher than the cost of doing business a bit differently.
Also consider that dragging down the rich doesn't uplift the lower and middle classes. If we have a monopoly problem (as the article's framing conveys), then we should maybe look at a solution to the incentives for excess corporate consolidation and anti-competitive behaviour, rather than getting dragged into the weeds with tired conversations about personal income taxes. Or if we're looking at the personal income tax side of things, at least look at something more relevant to the pain that small businesses face: people who are self-employed are at a tax disadvantage in the U.S, and self-employed people are often the ones who start businesses with their after-tax self-employment income.
> If we have a monopoly problem (as the article's framing conveys), then we should maybe look at a solution to the incentives for excess corporate consolidation and anti-competitive behaviour, rather than getting dragged into the weeds with tired conversations about personal income taxes.
How do you discourage consolidation without increasingly punitive tax levels on concentrated wealth and income (individual and corporate)? There are strong financial incentives for winner-take-all, I don't see non-financial tools being effective at fighting them.
> How do you discourage consolidation without increasingly punitive tax levels on concentrated wealth and income (individual and corporate)?
Income taxes can't do that anyway. If you have a pile of money collecting interest, it gets bigger over time whether you keep 80% of the interest or only 10%. It changes the rate but not the trend. And that's assuming it even does that, rather than having a nominally high marginal rate that nobody pays in practice, as was the case prior to the 1980s.
The way you fight consolidation is by facilitating competition. You can't keep a monopoly if anyone with a dominant market position is prohibited by antitrust from vertically integrating and anybody with $100 in their pocket and an hour's notice can join the market and compete with you. The way you get stable monopolies is regulatory capture and a regulatory environment with many overlapping barriers to entry for small businesses.
After-tax income is not the only incentive that drives people. Entrepreneurs and corporate executives did their thing even when tax rates were significantly higher than today.
Recall for me a competing principle with its very own meta-relevant renaissance painting. You are not going to untangle this knot with "just raise the top marginal rate"; it does not eliminate any underlying assumptions which preempt a solution. You do not have indy's gun, and this is not a bumbling swordsman.
"Bumbling"? The swordsman in the Raiders clip seemed to be quite skilled; unfortunately for him and his mission, his skills — and more importantly, his assessment of his situation — were badly mismatched to the reality. Putting it another way: As my late father used to say, you can be the world's most-skilled rain dancer, but that doesn't mean you'll be able to make it rain. Supply-siders urge tax cuts and more tax cuts because that will supposedly "make it rain" due to innovators doing more innovating and entrepreneurs doing more enterprising; they also scold anyone who suggests raising the top marginal tax rate. There's more than a little reason to wonder whether the supply-siders are like rain dancers.
If I understand supply-side economics correctly, the underlying model of human motivation assumes that innovators and entrepreneurs will change their behavior in response to almost any increase or decrease in marginal tax rates. While that's likely somewhat true when the marginal rates are at confiscatory levels, there's ample reason to doubt that it's true in the general case, because:
1. Optimizing after-tax revenue is not the only thing that motivates innovators and entrepreneurs. Many other things play roles as well, in varying degrees for different people: A quest for status; a sense of solidarity with "the tribe"; personal satisfaction from the work; and altruism, to name just a few factors.
2. We're nowhere near confiscatory marginal tax rates and haven't been for many years. The Reagan tax cuts were followed by his tax increases [0]. The tax hikes of the early 1990s, under Bush the Elder and Clinton, were followed by a major economic boom (yes, I know, correlation ≠ causation).
Most economists who have studied the matter have estimated that the optimum maximum tax rate for generating tax revenue is around 70%. [1] Economics Nobel laureate Paul Krugman (in whom I have considerable confidence because of his epistemological modesty and his track record) endorses this view [2]. The Cato Institute recently published an opposing view [3], but I don't find it persuasive, for socio-political reasons that I don't have time to go into.
I'm saying that it's a perfect waste of time to look at the problem of undue consolidation and monopolization from the perspective of personal income taxes. The same consolidation and monopolization trends have been happening in all of these income tax regimes.
> I'm saying that it's a perfect waste of time to look at the problem of undue consolidation and monopolization from the perspective of personal income taxes.
You might well be right about that; it's an empirical question.
> Also consider that dragging down the rich doesn't uplift the lower and middle classes.
You're pretty confident about your view of human motivation.
1. There's a certain motivational boost that comes from feeling that "we're all in the same boat." There's a reason that highly-paid NFL quarterbacks make a point of buying watches for their linemen, hosting banquets for them, etc. It's the same reason that military officers are taught never to ask your troops to do something you wouldn't be willing to do yourself if necessary — along with principles such as officers should only eat after they've made sure the troops are being fed, and they should sleep only when they've made sure the troops are getting sack time.*
* In reality, of course, there are circumstances when that won't be the case, e.g., when standing watch in a 24-hour rotation.
2. On the other hand, resentment, triggered by a feeling of being ignored and abandoned, is "a thing," whether we like it or not (probably programmed by natural selection). Moreover, people tend to view their well-being in comparison with that of their neighbors [0]; failing to keep up with the Joneses can be a real demotivator. That's especially true if you've come to believe that what you see the Joneses have, and you don't, is not a luxury but a necessity. For good or ill, most of us have that tendency, to one degree or another — ask any parent who has heard, But Dad, I NEEEEED a [whatever]!
3. The rich didn't get that way entirely on their own merits (and sometimes not even principally that way). If you haven't seen or read Elizabeth Warren's famous remarks, here they are: <QUOTE> "There is nobody in this country who got rich on their own. Nobody. You built a factory out there — good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea — God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along." </QUOTE> This is spot on.
You forgot the network in time. Almost all our current productivity is made possible by knowledge, processes, culture, and tools created by dead people.
For the rest of us, the only reason you can "make million" (or billions) is because you are at a favorable location in the human network in space and in time, and you get to control a sizable section of that network. You didn't build that network, nor did you build the capacity of the nodes, and not the vast majority of the connections. How much a human can achieve is very much a function in that network. Even in science. Newton or Einstein, what would they have accomplished 1000 years earlier?
Most of what we produce we owe to dead people, and since that is so, we can relax about distributing those gains that the current generation mostly just inherited. Nobody needs to be worried that "something is taken away from them" that they "worked hard for" when they have to pay taxes. Put a "self-made" man in the middle of nowhere and let them keep the result of their "hard labor" tax free. They can keep their entirely self- and literally hand-made mud hut.
For the same reason those who control larger sections of the human network benefit more from government than those who do not. Because it is government of one kind or another that enables it. If there is no government those who want to be rich and powerful create one. Which is exactly what happened - it wasn't the poor, the workers and farmers who created government. It was the rich and powerful. First local lords, then kings, then Britain and their parliament, forced by the new economic upstarts, not by the peasants. And some "redistribution" down to the lower levels was only introduced to pacify the masses (people like Bismarck in Germany, who introduced a pension scheme, are under no suspicion of communism), to let the wealth increase continue undisturbed. Just like the bee keeper has to give the bees something to live on.
Not entirely sure about your last paragraph, but the rest is intriguing — reminiscent of Newton's "standing on the shoulders of giants" remark [0].
Or: Imagine a variation on the Parable of the Workers in the Vineyard: The grape pickers show up at the end of the growing season and do their thing. They demand to be paid the lion's share of the entire crop yield, because it was their specialized skill and hard work that produced the harvest. They conveniently forget about the earlier workers who had patiently planted and tended the vines — without which there'd have been no harvest .... [1]
> 3. The rich didn't get that way entirely on their own merits (and sometimes not even principally that way).
In America, though, more so than most other places. If you look at economic mobility in America, it is impressively high.
> If you haven't seen or read Elizabeth Warren's famous remarks, here they are: <QUOTE> "There is nobody in this country who got rich on their own. Nobody.
Sure, nobody does anything alone ever.
> You built a factory out there — good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for.
A lot of road funding comes from fuel taxes, new infrastructure is built from the budget, where the corporate profit taxes, local and state sales taxes, and other miscellaneous fees and tariffs go. It's not as though companies don't pay for the roads they use.
> You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.
Chances are the public did not pay outright for their workers' educations. But let's assume for a moment that the public paid for their educations: Why did the public pay? Did the public pay so that they could hold it over every future employer, or did the public pay so that they could empower the individual to make him/herself useful for his/her own good? I'm willing to bet the latter. This kind of tyrannical thinking on her part is a big part of why subsidies are so much worse than their immediate effects: they paint a picture of dependence on the state where none previously existed.
> You didn't have to worry that marauding bands would come and seize everything at your factory...
Actually, they do. This is why companies spend so much money on private security and insurance: the police are not duty bound to protect your company's assets in the moment, they'll typically only follow up to a report. In the end, the company (and indirectly its employees and customers) pay for the cost of most crime in a highly direct way.
Then look at Venezuela, which became a "democratic socialist" country. Marauding bands literally came and seized everything at various factories and other businesses; and they did so with the full endorsement of the state.
> Now look. You built a factory and it turned into something terrific or a great idea — God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along." </QUOTE> This is spot on.
The money doesn't go to "the next kid who comes along"; at least, not hardly ever.
The real way wealth is kept in a social circle across generations is through social networks and in-person learning. You will never convince me to invest as much in teaching some stranger as selflessly as I would my own son.
> 2. On the other hand, resentment, triggered by a feeling of being ignored and abandoned, is "a thing," whether we like it or not (probably programmed by natural selection). Moreover, people tend to view their well-being in comparison with that of their neighbors [0]; failing to keep up with the Joneses can be a real demotivator. That's especially true if you've come to believe that what you see the Joneses have, and you don't, is not a luxury but a necessity. For good or ill, most of us have that tendency, to one degree or another — ask any parent who has heard, But Dad, I NEEEEED a [whatever]!
You don't solve that problem by giving mental children exactly what they want. You teach them that a) they'll probably squander it, because they didn't work for it, and b) if they really want it, they can get it through honest means.
If you have a problem with "failing to keep up with the Joneses", then you're in deeper doodoo than the freedom dividend can pull you out of. There is no amount of material wealth you can reasonably transfer to that person to make them satisfied with their lot in life.
> You teach them that a) they'll probably squander it, because they didn't work for it, and b) if they really want it, they can get it through honest means.
As to b), that's the No True Scotsman fallacy — you failed, so you must not have REALLY wanted it ....
SECOND: Assuming your premise arguendo, people vary in their ability to grasp life's lessons. That was tough for me to come to terms with — isn't it obvious? Why don't you see this? Believe it or not, what helped me see this was my frustration at the inability of my wife and our now-adult children — all of whom are very-intelligent people — to grasp what I regarded as simple mathematical concepts.
> If you have a problem with "failing to keep up with the Joneses", then you're in deeper doodoo than the freedom dividend can pull you out of. There is no amount of material wealth you can reasonably transfer to that person to make them satisfied with their lot in life.
As I mentioned upthread, we seem to be programmed by natural selection to want to keep up with the Joneses. OK, if that's the way things are: I make it a practice not to argue with the weather (to borrow a Heinlein saying), but instead to try to figure out how best to deal with it. If we want our interconnected global society to survive and thrive, we need to figure out better ways of dealing with the volatile combination of a) the Joneses problem and b) people's varying abilities to grasp life's lessons — especially when those who fail to grasp those lessons can misguidedly inflict grave damage on society.
"The tax code is completely different today from what it was when there were considerably higher marginal tax rates. The actual ratio of tax to GDP has not changed considerably since then."
That part, was a good and highly relevant addition to the conversation. It would be given more attention, if it were not surrounded by the rest.
Fair enough. I'm a bit frustrated today and I let too much of that come out in my phrasing. Sorry to dctoedt and everyone else who felt I was too coarse.
I've moved things around a bit (without removing anything, for posterity, and so that the replies make sense), and moved the important statement to the top.
Try to actually understand the totality of the circumstances you're talking about.
Too many people think they have just-so solutions to a problem they can't even characterize in any useful way. Please don't add fuel to the fire. The problems facing America can not be reduced to a misunderstood slogan or the name of a president or a street name or a single policy strategy. "Fight for fifteen"-ism and "the one per cent!"-ism do not magically make ordinary Americans richer. The catchier it is, the more likely there is a hidden beneficiary you aren't considering.