On Feb 24, 9:55 am, Jeffrey Turner <jtur...@[EMAIL PROTECTED]
> wrote:
> > No, that's not a necessary condition for the Laffer curve to be true.
> > As a thought experiment, imagine 100 people at 50K/yr and a constant
> > tax rate, and one person at 1 million per year and a marginal tax rate
> > that suddenly increases to 100% for incomes above $500K. That one
> > person will rationally choose more leisure over working for nothing
> > (or less), and cut back his work activities to decrease his income to
> > $500K in exchange for more free time. Which also reduces overall tax
> > revenue.
>
> If there's half a million in work to be done, someone - probably plural
> - will do it. Maybe ten more people at 50K each. And they'll consume
> more than that one person ever would have.
The consumption remark describes what is called the "marginal
propensity to consume", ie the amount that will be spent (vs. saved)
for an extra dollar of income. Keynes believed the rich had a lower
propensity to consume because statistics showed that they saved more,
resulting in "underconsumption." But Friedman has refuted that idea:
----
Friedman described Keynes's theory of a declining propensity to
consume as "very imaginative and thoughtful." But in A Theory of the
Consumption Function (1957), he demonstrated that while the hypothesis
seemed to make psychological sense, it was empirically false. In
relating income to propensity to consume, Keynes had erred in not
distingui****ng between "transitory" and "permanent" income. In fact,
consumption does not decline as incomes generally rise.
Economists across the political spectrum agreed with Friedman's
refutation of Keynes; as the liberal Paul Krugman of Princeton (and of
the New York Times op-ed page) noted recently, Friedman's ideas on the
subject provide the foundation "of how economists think about spending
and saving to this day."
----
The idea that the work will be done by others is faulty, I think. We
want the work to be done by the most productive people possible; in
effect you are ruling out the mot efficient people for doing the job
in favor of the less productive, resulting in lower overall
productivity. In the entrepreneurial world--say, starting up a new
technology company--there are a limited number of people who can pull
off the job. (As some people have put it, there are only 5,000 people
in Silicon Valley, and they just keep rotating into new companies.) If
you exclude them from the market via 100% taxes the companies will
simply not get off the ground. Joe Blow coder or accountant is not
going to have the skills to pull it off.
> > The supply siders constantly harp on marginal rates. You can hardly
> > accuse them of obfuscating marginal tax rates when that's a major part
> > of their spiel.
>
> They postulate, without evidence, that the top marginal rates are too
> high. Judging from the historical evidence, that doesn't seem to be the
> case.
The opponents are arguing against the concept of the Laffer curve,
period, not matter what the marginal rates. And the researchers, such
as Manikow, have some interesting results in showing that capital
gains tax rates have a different curve than income tax rates.
> > It's unclear why you think capping high incomes would have a positive
> > effect down the income scale. The more likely outcome would be more
> > lavish non-monetary compensation for executives and stockholders,
> > combined with decreased economic activity that hurts working stiffs.
>
> Stocks and bonds as compensation should be just as heavily taxed.
> Other non-monetary compensation would require hiring people to provide
> the goods or services.
There wouldn't be any difference, aside from a probable loss of
overall human satisfaction. If the company provides a car rather than
increase monetary compensation above some limit, the company car is
simply substituting for what the employee would have got with a
paycheck. The decrease in satisfaction comes from the employee having
to accept the company picks for the car rather than his own
preferences, plus the inherent inefficiences of purchasing products
through an intermediate organization.
You can see this to an extent with employer-purchased health
insurance. The disconnect between the consumer and the provider via
the intermediary results in inefficient allocations of resources.
Unfortunately since health insurance can be provided by the employer
with pre-tax dollars while private purchasers must use post-tax
dollars the free market has a difficult time prevailing.
> >>I'm going to guess that the top-down, authoritative structure of many
> >>workplaces might have to change if there were 100% taxation, and that
> >>wouldn't be such a bad thing.
>
> > That's just goofy. The jobs would be a lot more unstructured in the
> > sense that many wouldn't exist anymore, I'll give you that. But why on
> > earth would you think that the structure of the workplace would
> > change? All the socialist paradises out there are run pretty much the
> > same way as capitalist workplaces, only badly.
>
> Because a workplace that eliminates pointy-haired bosses would attract
> more workers than one which doesn't. And cooperatively run enterprises
> often do quite well.
Uh, no. The PHBs are actually pretty good at filling customer needs,
while people like me mostly want to solve software puzzles and do cool
stuff. They have their role, I have mine.
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