I don't understand why there's such a drive for taxing high earners. I mean, I do kind-of understand - they're a convenient target for the lower classes that the elites use to redirect their anger - but I don't think it makes economic sense.
If anything, we should be encouraging people to improve their skills and hence raise their value/salary. Instead, taxation should be focused on wealth not income. It's been shown time and again that the bigger tax "dodgers" (including those that legally pay very low tax) are the extremely rich (including corporations) who own a lot of capital and can afford lawyers that help them hide it in offshore accounts or other tax-advantaged vehicles (e.g. trust funds).
High income individuals in this sense are taxed quite highly in basically every first world country.
The people who aren't taxed highly, and who arguably should be, aren't the "high earners" but the "high revenue owners" whose income derives not from their own work but from the performance of the assets that they own.
As for progressive taxation, I've never heard a clear justification from, well, anyone. Maybe it just seems obvious to everyone (I'm not being sarcastic here; this is a genuine oddity that has bugged me for ages). In my opinion, progressive taxation is justified because people probably experience diminishing marginal utility with respect to wealth. Which is just a fancy way of saying: an extra dollar of wealth means much less to a millionaire than it does to someone who is starving and homeless. So society probably makes a net utility gain by taking a dollar from the millionaire and giving it to the starving homeless guy.
Following from this are second order considerations like: how many dollars can be taken from millionaires before they decide to put forth less productive effort, and we all end up worse off? It becomes a constrained optimisation problem and a question of degrees, although people seem hell-bent on treating it as a question of absolutes.
1) Give up on corporate tax and shift the tax burden on to less mobile bases (e.g. land, consumption). This scenario seems to be slowly playing out across the developed world (perhaps a bit faster in Ireland's case...)
2) Engineer some kind of grand international agreement on corporate tax rates, kinda the Bretton Woods system for tax. This would be necessary because there's such a strong incentive for countries to 'undercut' each others' corporate tax rates (to attract foreign capital investment, tax havens being the extreme example of this). Such an agreement would require: a specific (but not too specific) agreement on minimum corporate tax rates, the participation of countries representing most of the world's production output, and provisions that levy punitive tariffs on non-complying, and non-participating, countries that go below the minimum rate.
Even up until recently, I've thought (2) to be basically impossible. But in the past few days I've begun to think maybe I was wrong to rule this out completely. In a strange way, Trump's presidency might be the golden (and possibly only) opportunity for this. He seems to be just the right amount of crazy to do it. I couldn't imagine an 'establishment' president going near something like this. And I think only the US could lead such a process, maybe with some quietly pre-agreed support from China. Given the capital flight China is currently plagued with, their precarious public finances and their main central banker publicly stating support for some kind of international agreement on capital controls (I believe he actually invoked Bretton Woods), it seems like a few stars are aligning.
I don't want to give you false hope here. I still think (2) is very difficult and unlikely. It would have to be 'sold' to government skillfully. Perhaps our 'automated future' is the narrative to go with. Something like: As labour is replaced by algos/robots, then by definition production becomes more capital intensive. So more and more of the gains from production and trade accrue to a fairly small group of capital owners.
It's conceivable that, in the not too distant future, some of these mega-corporations will have revenues/net incomes that rival that of even large, first-world governments. At this point, they will be an existential threat to liberal democracy as they will have the means to field a sizeable 'private security force'. Not to mention the immense soft-power they will wield when they control most of the world's means of production.
So, although this may all sound crazy, it would be unwise and dangerous to allow things to reach a stage where liberal democracy is in peril. Therefore, we must tax corporations/capital in a way that leaves them nowhere to run (i.e. via an enforced international agreement on rates). Also, a fair chunk of this revenue will be redistributed to workers (perhaps it may even be enough to fund basic income), so it's good populist policy that a populist leader like Trump is well suited to selling (although he'll face significant opposition from those suckling on the corporate teat i.e. mostly everyone, including the 'mainstream' media).
Note: I'm not really keen on emotive arguments like the above, but I think some version of the above is what it would take to sell a radical proposal like an international agreement on corporate tax rates.
Edit: anyways, if you ever have any updates, interesting articles/discussion points, or need supporters for your politics, let me know!
Because for decades we've allowed capital accumulation to grow faster than salary accumulation. That's yielded us a class of ultra wealthy. The desire is to reverse the bias from capital to salary, so that the working class can benefit from increased productivity, because so far the benefits of productivity gains has gone largely to the wealthy via their capital gains.
> we should be encouraging people to improve their skills
That would help, but the game is still against you since we've structured our economy over the last few decades to grow capital faster than salary. So, improving your skills and getting paid more still means you are getting farther behind.
Envy, mostly. That and the thought that wealth is a fixed sized pie, so if someone is rich that must be causing others to be poor.
Here's an interesting article from NPR on the reforms most economists seem to agree on. Interestingly the panel of economists had a broad range from very liberal to very conservative and they were all able to agree on several things that virtually no politician would ever endorse! Enjoy!
http://www.npr.org/sections/money/2012/07/19/157047211/six-p...
* Raising corporate income tax (if you argue for this you won't get many job offers from generously funded corporate think tanks).
* Raising the minimum wage (likewise).
>Remember, virtually every job there is comes from some sort of corporation.
If you take a dollar from corporate profits and give it to the government they will spend it, creating jobs.
If you take a dollar from corporate profits and give it to a low wage worker in the form of a minimum wage hike, they will spend it, creating jobs.
If you take a dollar from corporate profits and distribute it as dividends, it will likely be re-used to bid up the stock market or the price of property and won't be spent, which is bad for economic growth and everybody who isn't rich (story of the last 10 years).
If you take a dollar from corporate profits, corporations will spend another dollar on a think tank who will put out some kind of specious reasoning about why taking money from them is bad.
If you take a dollar from corporate profits, they'll threaten to shut down and make everybody unemployed out of spite. That's what's known as an "empty threat" when corporate profits are at record highs (which they are).
>A lot of economists have a vested interest in pretending that the following policies are generically, speciously "bad for the economy", because reasons
This sounds like you're saying that the broad consensus among economists from different backgrounds and theoretical stances described in the article I linked can't be trusted because economists are unreliable in general? That doesn't sound like a useful position to take, nor does it actually reference the position outlined and defended in the article.
So taxing profits reduces the growth in productivity. Productivity growth is the main source of wage growth and indeed that slowdown in productivity growth is the source of most of the slowdown in wage growth that has been seen in the US over the last 40 years.
Arguably that's not the case. If a company invests their excess cash then that money is spent and is no longer profit and no longer taxed. So, by increasing the tax rate you are encouraging a company to accumulate less profit, they can achieve that in any number of ways.
A company may invest into their business to increase profits later (e.g. Amazon's growth model), they may forego company profit by increasing dividends. Or, I could see a CEO try to bump up their decreased profit by reducing expenses elsewhere and cutting jobs or something equivalent. This is the area that economists focus on, but it strikes me as naive to think all businesses will choose this option whenever a corporate tax increase occurs.
I was using a simplified example that ignores deductions. You're right of course.
But that doesn't change the fundamental relationship between taxing profit and investment.
Even if all reinvestment is made tax deductible, a tax on profits still reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections, and with higher taxes on profits, ROI declines.
Moreover, sometimes it is more effective to sit on profits, and wait for a good opportunity to appear, and taxing all accumulated profits creates an incentive to not do that.
There is no fundamental relationship between taxing profit and investment. If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.
There is a fundamental relationship between demand and investment, which is why raising "profit taxes" (corp tax, dividend tax) and spending the money will lead to increased investment (to service increased demand).
>reduces the incentive for individuals to invest in corporations, since all investment decisions are based on ROI projections
Reducing profit across the entire economy reduces the ROI projection at the same time as reducing alternative opportunities which the investor can switch to.
>Moreover, sometimes it is more effective to sit on profits
For the company. The economy as a whole suffers immensely when the corporate sector does this.
The sole motivation for investment is profit. As profit declines, fewer investments are justified by the projected ROI.
>If a company makes 20 million a year after tax it is not going to drop everything and stop making a profit at all if it starts making 15 million a year after tax.
There's no way a party can know beforehand how much profit, if any, there will be. The estimated possibility of profit is adjusted for the estimated risk of loss, to get the projected ROI. Higher taxes reduce the projected ROI, because they reduce the size of the possible profit.
But since they're currently sitting on record high stacks of cash (Apple alone has ~1/4 of a trillion dollars), I wouldn't be too worried about that.
>The shareholders will also have less incentive to reinvest their dividends
They're currently sitting on record high stacks of cash because they have little incentive to reinvest. It's not about tax though, it's about a lack of demand (see original points one and two for how to fix that).
The attitude of wanting to violate other parties' property rights invariably comes down to a sort of arrogance in believing that the way the market works and the way people manage our own property is incorrect and that you have a better idea on how they should be using their property.
Strangely enough Apple is one of those companies taking advantage of near zero interest rates despite having 1/4 a trillion in cash.
If you make debt cheap enough it makes sense to do all kinds of crazy stuff.
>The attitude of wanting to violate other parties' property rights invariably comes down to a sort of arrogance in believing that the way the market works and the way people manage our own property is incorrect and that you have a better idea on how they should be using their property.
Some people believe that property rights should be configured to serve society's best interests. Other people believe that society should be configured to serve the interests of people with property (or, the market as you put it). One example of this type of person was Southern US slaveowners.
A spending plan that's imposed with a stroke of a pen, and that recklessly interferes with hundreds of millions of people, and forces them into economic relationships with people based on crude categorisations, like income levels, and simplistic formulas, like those that determine eligibility for government assistance programs, is no substitute for the intelligently formed personal relationships and market transactions that spontaneously emerge when property and contracting rights are respected and protected. The latter is based on the unique knowledge of hundreds of millions of people, that is aware of local conditions and opportunities for optimisation.
As for slaveowners, what they have in common with socialists is a belief that they have a right to forcibly confine those who refuse to surrender their rights to them.
The cost of an education is already free though. If you cannot learn from those resources, perhaps you are not cut out for the fast-pace world of automation anyway?
> people would take more classes and become more skilled and get higher paying jobs.
Is demand really going to grow that fast? Programmers make up about 0.8% of the population. Programmers can do relatively well because they are, relatively, rare. But if we tripped the amount of people working in software, you would still be only utilizing under 3% of the population.
If your training efforts were successful, I would expect more than 3% of the population having the necessary skills. That would result in much lower pay.
This is a good point, except that what's actually expensive is the credential. The stranglehold of the universities on the credentialing process would have to be broken (also, at a higher level, the stranglehold of the accrediting agencies on the accrediting process).
The exception is the professions where the law requires it. Employers don't have a lot of choice in those cases. But those jobs specifically have that in place to reduce the numbers to artificially increase incomes. They explicitly don't want more people.
You're probably not going to get a job in a Wall Street investment bank with a degree from Directional State University, much less with no degree at all.
If true, that tells us that they already have more people then they could ever hope to choose from. After all, they'd be desperate enough to look outside that box otherwise.
So what is credentialing another person really going to add?
You are assuming that these decisions are based on rational criteria.
They aren't.
Limiting selection to within degree holders very well may be irrational, but that's not what we are talking about. We're talking about the ability to fill the jobs that need to be filled. Since, as you claim, they have no need to look beyond those with degrees, then we know fundamentally that they already have every single person they need. That's basic arithmetic.
Again, what does adding another person with a degree bring?
When you claimed that "looking outside the box" was an option. It isn't. A degree from Directional State University might be intellectually equivalent to one from Harvard, but socially it's not even close to being the same thing.
You are arguing from the standpoint of humans as homo economicus, in which companies will hire the cheapest workers regardless of outside factors. That may be mostly true for a sweatshop factory, but it is a long, long way from being true for investment banks.
The higher taxes and minimum wages would encourage companies to invest in automation, which would increase productivity, increasing corporate profits _and_ government revenue. There'd be a huge jump in demand for jobs installing, maintaining, designing, programming, and building automation technology, and a general increase in demand across the board as more people have more income because of higher minimum wages, which allow them to spend more money, which in turn grows the economy.
The additional investments in education availability would be timely since with higher demand for skilled labor and lower cost of tuition, people would take more classes and become more skilled and get higher paying jobs. It's a virtuous cycle.
Would inflation come of this? Probably some, but after a decade of sub-2% inflation, we actually _need_ more inflation. Inflation raises prices, but it also raises salaries. When huge swaths of the middle class are buried in mortgage, student loan, and credit-card debt, inflation makes those debts _smaller_, which means those people have more money to spend, which grows the economy, creates jobs, and raises wages.
It can become a virtuous cycle, if only we were brave enough to kick it off.