I don't think your correlation suggests what you think it does - look closer at which countries have the highest GDP growth rates. Economic growth rates are not a good indication of countries where people would generally choose to live. I'd generally use HDI, happiness, life satisfaction, or similar, all of which correlate to higher government spending.
>>>Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
Yes, of course. So your wealth (above the threshold) grows at an effective 3% instead of 4% (or whatever). PG's essay makes it seem like your fortune will dwindle away to nothing, which isn't true. It'll just grow more slowly than it could.
>>>Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus
But this misses the point - other things aren't equal! California already has a higher tax burden than many other states, the US already has higher taxes than many other nations, and still they are among the richest places on earth. Higher taxes can create a society much more beneficial to all of its members, including the rich ones.
>>>How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind?
Enough to make sure every person has enough to eat, somewhere to live, universal healthcare, access to education, and the opportunity to succeed.
>>>Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
Unlikely. If there is such a stage, I suggest to you it's well below ~5% on all wealth above ~$10 million (which is at the top range of what is discussed in these kind of wealth tax proposals).
I don't follow. The countries with the highest GDP growth rates are the ones seeing standard of living and poverty rates improve the fastest.
Within the developed world, those countries with the highest GDP growth rates are those that are producing the highest wage growth for their people.
>>I'd generally use HDI, happiness, life satisfaction, or similar, all of which correlate to higher government spending.
HDI, happiness, etc improve faster in countries with higher economic growth rates. A common pattern could be that countries institute sensible economic policies, based on what science (Economics) says works, and then when they get wealthy, become complacent, and adopt all sorts of anti-capitalistic policies that retard economic growth rates, which in turn results in all socioeconomic metrics stagnating.
Look at the Scandinavian countries: they attained the highest life expectancy and health outcomes in the world by the 1960s, after a century of very free-market oriented policies and moderate tax rates.
Then they adopted very socialistic policies, and subsequently saw both their economic growth rates, and their rankings in metrics like per capita GDP and life expectancy, suffer.
Hong Kong and Singapore for example caught up to and surpassed every Scandinavian country in life expectancy over the last 50 years. That is not a sign of superior policy in the European social democracies. That's a sign of squandering a lead, based on economically misinformed narratives favoring non-consensual income redistribution.
>>So your wealth (above the threshold) grows at an effective 3% instead of 4% (or whatever). PG's essay makes it seem like your fortune will dwindle away to nothing, which isn't true. It'll just grow more slowly than it could.
The essay explains how much you're losing over time, compared to what you would have had in the absence of the wealth tax, but okay, fair enough.
>>But this misses the point - other things aren't equal! California already has a higher tax burden than many other states, the US already has higher taxes than many other nations, and still they are among the richest places on earth. Higher taxes can create a society much more beneficial to all of its members, including the rich ones.
Being among the richest places in the world is a consequences of centuries of prior policy, not the policy in this one snapshot in time alone! The labor productivity and wage growth rates clearly show a stagnation since the high-social-welfare-spending policies were instituted.
California has consistently lost the middle class to Texas since becoming a very high tax rate state. This pottentially indicates that the latter has better policy than the former.
>>Enough to make sure every person has enough to eat, somewhere to live, universal healthcare, access to education, and the opportunity to succeed.
What if that means 99% tax rate? Do you really think that is better for the population in the long run?
Where do you think opportunity comes from anyway? Your assumptions on what leads to societal progress contradicts the findings of a century of economic scholarship, and with all due respect, are every bit as ignorant as anti-vaxxerism.
>>Unlikely. If there is such a stage, I suggest to you it's well below
Wait, you think it's unlikely that there is a point at which higher tax rates for more social welfare programs would do more harm than good?
Right, because they have a lot of low hanging fruit to pick. I'd rather live in a advanced economy with a high standard of living than a developing one with a high growth rate.
>>>Look at the Scandinavian countries..
They still have excellent outcomes and high rankings in the HDI and Satisfaction with Life index. Hong Kong and Singapore are also doing excellent work, especially on the HDI. The Scandinavian nations are doing a lot better lowering poverty and wealth inequality though.
>>>The labor productivity and wage growth rates clearly show a stagnation since the high-social-welfare-spending policies were instituted.
Are you sure of the direction of that causation? Did welfare policies lead to low labour productivity/wage growth? Or were they introduced to address some of that stagnation?
>>>What if that means 99% tax rate? Do you really think that is better for the population in the long run? Where do you think opportunity comes from anyway? Your assumptions on what leads to societal progress contradicts the findings of a century of economic scholarship, and with all due respect, are every bit as ignorant as anti-vaxxerism.
A 99% tax rate on marginal incomes above, say, $10 million, or marginal wealth above $1 billion, would probably not be disastrous, no. I'm not suggesting it, I think ~60% max on marginal income and ~5% max on marginal wealth would be high enough. Please, lay out the harm for me there - what would befall us if we established even the 99% rates? What societal progress do you think is driven by high net worth individuals hoarding wealth? The growth of the middle class has been the overwhelming source of wealth and standard of living increases over the last century.
>>>Wait, you think it's unlikely that there is a point at which higher tax rates for more social welfare programs would do more harm than good?
Oh, sure, you could sabotage society easily enough if you had the highest marginal rates start at too low an income or wealth. But fundamentally, we could probably have a fully functional (better than the current) society where no one has more than $1 billion of wealth or $10 million/year income or something. But that's not really not what we're talking about - the question is if our richest 1% had slightly less money and our poorest 10% had slightly more, would society not be better off?
Of course I would rather live in an advanced economy, but the question is, how does an economy become advanced.
The evidence strongly suggests it's most rapidly achieved through adoption of pro-market policies.
The last 30 years has seen the largest most rapid reduction in the global poverty rate in human history, and almost all the decline in poverty was due to economic development, which economists have concluded was massively facilitated by the spread of market institutions like property rights:
1. https://www.theatlantic.com/magazine/archive/2010/07/the-pol...
2. https://www.csmonitor.com/World/2016/0207/Progress-in-the-gl...
3. https://www.economist.com/leaders/2013/06/01/towards-the-end...
There is no reason to assume that this relationship between pro-market policies and high rates of economic growth stops existing for advanced economies.
We see indications of it manifesting across the developed world, like the superior performance of Hong Kong and Singapore relative to other developed economies, or Iceland relative to other Nordic countries, or in cross-European studies correlating low tax rates with high economic growth rates.
Economic growth is the primary source of all improvements in quality of life, so we should have policies that maximize it. It is how an advanced economy comes to be that way.
And there is no indication, or reason to believe, that economic growth's positive impact on quality of life disappears when economies become advanced. There is a strong correlation between per capita GDP and quality of life, and the reason is obvious: higher productivity gives people greater means to meet their needs.
>>They still have excellent outcomes and high rankings in the HDI and Satisfaction with Life index.
My point is that Hong Kong and Singapore did substantially better than them in improving their metrics.
Like I said, the Scandinavian countries attained the highest standard of living ranking in the 1960s, when they were still very free market oriented and had moderate tax rates, and had just had a century of the best economic growth rates in the world, again with free market economic policies.
Your analysis misattributes the cause of their high standard of living to their current social democratic policies, when all the evidence indicates that it was due to their previously more free market policies.
>>A 99% tax rate on marginal incomes above, say, $10 million, or marginal wealth above $1 billion, would probably not be disastrous, no.
This would be absolutely disastrous. Major companies, that bring in tens of billions in export revenue for the US, and produce groundbreaking innovations for the world, would have been founded and centered outside of the US, or simply never come into existence, with those kinds of disincentives for entrepreneurs and investors in place.
As a Scandinavian that is an absolutely ridiculous claim. The free market period is now, with its quickly widening inequality, and the more socialistic period was during the period you claim to be "very free market" oriented.
Your own comment is considerably more condescending. As for speciousness...
> There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.
That correlation is disputed, to say the least. Even if it weren't, economic growth rates, while important, are not the be-all and end-all of society being "better", especially when a large amount of the wealth is concentrated in a few hands.
>>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem. > Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
Perhaps. But a 4% rate of increase would still belie the contention in pg's post that "by 5% [the threshold at which the tax starts] is getting close to being an upper bound on how much of the company you get to keep". It seems probable that pg simply did not take interest into account.
> Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010.
Over the same period, the share of income going to the top 1% doubled.
> How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind? > Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?
Ever? Certainly, if you keep cranking up the number. But the United States isn't necessarily at or even near that stage, considering that several large European countries have strong economies despite much higher government spending as a percentage of GDP.
The correlation is plainly evident in the datasets. It's a very strong correlation that has been widely observed and studied.
>>It seems probable that pg simply did not take interest into account.
It's possible he did. Regardless, PG clearly laid out why such taxes are absolutely disastrous for both the incentives to start companies and the expansion rate of existing companies. You can fiddle around with the numbers, and the basic conclusion wouldn't change.
>> Even if it weren't, economic growth rates, while important, are not the be-all and end-all of society being "better", especially when a large amount of the wealth is concentrated in a few hands.
Economic growth rates strongly correlate with improvements in overall socieconomic metrics. See my comment in the other discussion: https://news.ycombinator.com/item?id=24207752
>>But the United States isn't necessarily at or even near that stage, considering that several large European countries have strong economies despite much higher government spending as a percentage of GDP.
The US and large European countries have all seen their economic and wage growth rates stagnate since 1970. This is disastrous for the objective of improving quality of life. Nothing has a larger long-term impact on quality of life than per capita GDP. Productivity growth is the basis of nearly every improvement in people's living conditions.
Of course, Western countries still have strong economies. Other countries cannot catch up to three centuries of superior industrial development in a single generation. But the rate of improvement has stagnated, and other less social democratic countries have closed their gap with the West, so there is absolutely no reason to assume the last 50 years' experiment in social democracy has been a success.
Let's go through each:
>>There's a reason failed states and unstable/developing countries generally aren't where people are looking to startup the next big tech company.
There's a negative correlation between government spending levels as a percentage of GDP, and economic growth rates. Your implication, that society is better off with high levels of taxation, is not supported by the science on the matter.
>>Third, any smart founder isn't going to just sell 1% of their stock every year and pay the wealth tax with that. They'll take dividends, or take out a loan against the value of the stock, or use some cash from other investments, or whatever, and maintain control of their company. Yes, over the long term they'll lose some wealth, but not necessarily control of their company, unless that's the decision they make.
Completely irrelevant to the point. The point is that you lose much of the wealth you would have otherwise gained, in the absence of the wealth tax. Whether that's because you have to pay out more dividends, that would otherwise have been reinvested, to transfer to the IRS, or take on loans, that have to be paid back with revenue that would have otherwise been reinvested, is incidental.
>>Fourth, this effectively ignores that wealth is a thing that grows and compounds. If your wealth is increasing at 4% a year (very attainable for the class of people a wealth tax would affect) a 1% wealth tax really doesn't have as big an impact on your long term wealth as this makes it seem.
Wrong. The losses also have to be compounded. That 1%, had it remained invested, would have grown at a compounding rate as well. So you lose the 1% and all compounded gains on it.
>>Fifth, the idea that people "will just move to another country" is very silly. If some people do leave, or start companies only in other jurisdictions, that just means there's a market opportunity for the many people who remain.
This is a misunderstanding of the factors behind an investment. Investment does not automatically emerge to fill every market opportunity. It emerges when the ROI on potential investments meets the demands of the available investable financial capital. Investment decreases when the expected ROI decreases, and when the available investable financial capital decreases. A wealth tax decreases both the expected ROI, and the available investable financial capital.
Moreover, you're completley ignoring competitiveness. Firms in low tax tax jurisdictions will outcompete firms in high tax ones, ceteris paribus. Opportunities are not distributed across the world evenly, and one factor that affects opportunity is tax rates.
>>I'd much rather we have well funded schools and welfare for those who need it.
Government spending as a percentage of GDP has increased from 25% in the 1950s to 40% today. Social welfare spending increased by an average of 4.8%, EVERY YEAR, between 1972 and 2010.
How much more do you think government spending should increase? What share of private economic output should be non-consensually redistributed for social welfare programs in your mind? Will there ever reach a stage where you think the negative effects on capital formation, from further tax hikes, will outweigh the positive effects of a greater share of economic output being available to the poor in the form of cash payments and social services?