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Consumption Tax

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Posts

  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited May 2009
    Cervetus wrote: »
    kiry wrote: »
    Right just to clear up some misconceptions in this thread. All tax is distortionary and second-best. Income tax does disincentivize labour at the margin. Think about it this way: people can either choose to work and earn income for consumption or they can enjoy leisure time. By taxing income at the margin you change the point at which it is no longer worthwhile for them to work and instead consume leisure time. No matter if you feel "ok" with this (and taxing 90% or whatever on the richest) it is inefficient. But of course all taxes suffer from a similar inefficiency in that they distort someone's incentives. This is indisputable economics 101.

    This assumes that working harder is directly proportional to earning more. A high income tax could instead mean that a CEO decides to pay their employees more because heaping the wealth on themselves isn't worth the dirty feeling it leaves any more.

    Working harder is indeed not directly proportional to earning more (this actually follows directly from the marginal-labor analysis, so you're not making a particularly controversial point. Pay CEOs too high a wage and they take off and golf instead. Backward bending supply curve of labor, etc).

    However, this is generally not applicable In Real Life, in the same way the Laffer curve doesn't exist In Real Life: the model is theoretically valid, it just doesn't happen to apply to our particular universe. In general, in the neighbourhood of real-life labor wage phase space, a tax on labor disincentivizes labor. While it is theoretically possible for a tax on labor to incentivise labor, it just doesn't seem to occur frequently enough to be empirically significant.

  • Kipling217Kipling217 Registered User regular
    edited May 2009
    Cervetus wrote: »
    kiry wrote: »
    Right just to clear up some misconceptions in this thread. All tax is distortionary and second-best. Income tax does disincentivize labour at the margin. Think about it this way: people can either choose to work and earn income for consumption or they can enjoy leisure time. By taxing income at the margin you change the point at which it is no longer worthwhile for them to work and instead consume leisure time. No matter if you feel "ok" with this (and taxing 90% or whatever on the richest) it is inefficient. But of course all taxes suffer from a similar inefficiency in that they distort someone's incentives. This is indisputable economics 101.

    This assumes that working harder is directly proportional to earning more. A high income tax could instead mean that a CEO decides to pay their employees more because heaping the wealth on themselves isn't worth the dirty feeling it leaves any more.

    Plus there is only so many hours a person can work, only so much work one person can and only so much of a market for goods. The Idea that people will keep working until taxes make them stop is kinda stupid.

    Communicating from the last of the Babylon Stations.
  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited May 2009
    Kipling217 wrote: »
    Plus there is only so many hours a person can work, only so much work one person can and only so much of a market for goods. The Idea that people will keep working until taxes make them stop is kinda stupid.

    This thread makes an econ geek sad :?

    Marginal analysis, yo. It's true that hours are limited and there's only so much work someone can do; this is also irrelevant.

  • Kipling217Kipling217 Registered User regular
    edited May 2009
    Actualy Marginal analysis fails to take the actual human Cost of Work into account(i.e. what I said). Reality analysis requires a something more complex than a subjective one more piece of good.

    Communicating from the last of the Babylon Stations.
  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited May 2009
    Kipling217 wrote: »
    Actualy Marginal analysis fails to take the actual human Cost of Work into account(i.e. what I said). Reality analysis requires a something more complex than a subjective one more piece of good.

    *rage*

    You know what this feels like? Imagine an physicist talking about rockets. He says, okay, Newton's third law. For a rocket to go up, it needs to push downwards.

    And then someone comes in and says, actualy you're ignoring all the other factors that influence actual rocket motion. Real rockets are more complex than that.

    D:


    ... anyway. It is trivially true that there are a horde of factors influencing the 'actual human Cost of Work' besides the wage rate. However, it is also true that we are here concerned about wage changes via income tax - and the most empirically significant change imposed by a wage change, is, yes, on the wage rate. Hence marginal analysis, focusing on the marginal wage.

  • CervetusCervetus Registered User regular
    edited May 2009
    But does marginal analysis take wind resistance into account?

    The libertarian response to anything is, "Sure, that works fine in practice, but it doesn't fly in theory."
  • KalkinoKalkino Buttons Londres Registered User regular
    edited May 2009
    Andrew_Jay wrote: »
    Quid wrote: »
    Oh, and the family didn't lose a ton of it as they didn't have it in the first place. The only reason they get any is because the person dying gives it to them.
    It's very easy to imagine an asset that several generations of a family would make use of, even if it's owned by one member. Take the cottage in my example. Grandpa buys a cottage for cheap 60 years ago, the whole family uses it and it has considerable sentimental value to everyone. It will probably increase in value owning to inflation and demand, and when he dies, hopefully, there will be enough liquid assets to pay the taxes on that cottage - if not, that cottage might be lost outright, solely because Grandpa died. So the inheritor's do stand to lose something - perhaps not their legal property, but access to something that previously had access to. In such a scenario the inheritance tax seems like a pretty arbitrary cash grab.

    This is what's known as the "family farm" scenario, and the reality is that there has never been a case where a middle class family had to sell off ancestral land to deal with the tax burden on it. Not one.

    You are being sarcastic right?

    Freedom for the Northern Isles!
  • kirykiry Registered User
    edited May 2009
    Kipling217 wrote: »
    Cervetus wrote: »
    kiry wrote: »
    Right just to clear up some misconceptions in this thread. All tax is distortionary and second-best. Income tax does disincentivize labour at the margin. Think about it this way: people can either choose to work and earn income for consumption or they can enjoy leisure time. By taxing income at the margin you change the point at which it is no longer worthwhile for them to work and instead consume leisure time. No matter if you feel "ok" with this (and taxing 90% or whatever on the richest) it is inefficient. But of course all taxes suffer from a similar inefficiency in that they distort someone's incentives. This is indisputable economics 101.

    This assumes that working harder is directly proportional to earning more. A high income tax could instead mean that a CEO decides to pay their employees more because heaping the wealth on themselves isn't worth the dirty feeling it leaves any more.

    Plus there is only so many hours a person can work, only so much work one person can and only so much of a market for goods. The Idea that people will keep working until taxes make them stop is kinda stupid.

    You've completely misunderstood. People don't simply "keep working until taxes make them stop" but they do weigh up the costs of working (i.e. the opportunity cost of their lesiure time) against the benefit of additional consumption. While it might be true that in the real world effort is not perfectly correlated with wage (and thats a separate issue of contract theory) we can still generally say that there is a trade-off of leisure and hours worked for consumption. People only keep working until the taxes make them stop in the sense that it shifts the point where it is no longer beneficial to work compared to additional leisure time.

    Ask anyone who has done economics and they will tell you the same: taxes are distortionary at the margin, they generate inefficiencies. A first best solution would be to use lump-sum transfers, in incomes case based on some variable such as ability. In such a scenario the individual is taxed irregardless of how much they earn and so there are no incentive issues. This is efficient. Of course this requires information on some unobservable variable like "ability" which governments clearly do not know, and so we use a second-best option like taxation instead in the belief that the inefficiency it generates is outweighed by the benefit of government (not a hard thing to believe).

  • Kipling217Kipling217 Registered User regular
    edited May 2009
    ronya wrote: »

    *rage*

    You know what this feels like? Imagine an physicist talking about rockets. He says, okay, Newton's third law. For a rocket to go up, it needs to push downwards.

    And then someone comes in and says, actualy you're ignoring all the other factors that influence actual rocket motion. Real rockets are more complex than that.

    D:


    ... anyway. It is trivially true that there are a horde of factors influencing the 'actual human Cost of Work' besides the wage rate. However, it is also true that we are here concerned about wage changes via income tax - and the most empirically significant change imposed by a wage change, is, yes, on the wage rate. Hence marginal analysis, focusing on the marginal wage.

    That would be cool if Economics was a hard science instead a part of the humanities. It would also be cool if Marginal analysis could be used as a more than rule of thumb. If you could falsify and test the entire theory instead of only parts of it. I mean its one of the main critisism of marginal theory.

    Also real rockets are more complex then just the third law of motion and I was under the impression that we where discussing the real world and not some abstract land of make belive. What I was saying was that taxation in the real world is one of only many factors, if I stumbled into a theory discussion then that is fine and I will move on.

    But I took Econ 101 and even then I thought Marginal analysis was a shallow way at looking at things and if we are to disscus the impact of a consumption tax we should try for a more nuance view

    Communicating from the last of the Babylon Stations.
  • Kipling217Kipling217 Registered User regular
    edited May 2009
    I should perhaps clarify myself in my original statement; Taxation will of course play a role in any job market, but that people will place other "physical" factors before it and for the vast majority(90-99%) this will disincentivise them long before taxation becomes an issue. The remaining 10-1% are not really relevant in the debate.

    If I am wrong please tell me how and why. The taxing people until they stop working is my idea of a snarky comment. I will stop doing that now.

    Communicating from the last of the Babylon Stations.
  • AngelHedgieAngelHedgie Registered User regular
    edited May 2009
    Kalkino wrote: »
    Andrew_Jay wrote: »
    Quid wrote: »
    Oh, and the family didn't lose a ton of it as they didn't have it in the first place. The only reason they get any is because the person dying gives it to them.
    It's very easy to imagine an asset that several generations of a family would make use of, even if it's owned by one member. Take the cottage in my example. Grandpa buys a cottage for cheap 60 years ago, the whole family uses it and it has considerable sentimental value to everyone. It will probably increase in value owning to inflation and demand, and when he dies, hopefully, there will be enough liquid assets to pay the taxes on that cottage - if not, that cottage might be lost outright, solely because Grandpa died. So the inheritor's do stand to lose something - perhaps not their legal property, but access to something that previously had access to. In such a scenario the inheritance tax seems like a pretty arbitrary cash grab.

    This is what's known as the "family farm" scenario, and the reality is that there has never been a case where a middle class family had to sell off ancestral land to deal with the tax burden on it. Not one.

    You are being sarcastic right?
    Nope. The issue has already been dealt with in the law as is now. It's like arguing about what would happen if you inherited a unicorn.

    XBL: Nox Aeternum / PSN: NoxAeternum / NN:NoxAeternum
    Spoiler:
  • KalkinoKalkino Buttons Londres Registered User regular
    edited May 2009
    Kalkino wrote: »
    Andrew_Jay wrote: »
    Quid wrote: »
    Oh, and the family didn't lose a ton of it as they didn't have it in the first place. The only reason they get any is because the person dying gives it to them.
    It's very easy to imagine an asset that several generations of a family would make use of, even if it's owned by one member. Take the cottage in my example. Grandpa buys a cottage for cheap 60 years ago, the whole family uses it and it has considerable sentimental value to everyone. It will probably increase in value owning to inflation and demand, and when he dies, hopefully, there will be enough liquid assets to pay the taxes on that cottage - if not, that cottage might be lost outright, solely because Grandpa died. So the inheritor's do stand to lose something - perhaps not their legal property, but access to something that previously had access to. In such a scenario the inheritance tax seems like a pretty arbitrary cash grab.

    This is what's known as the "family farm" scenario, and the reality is that there has never been a case where a middle class family had to sell off ancestral land to deal with the tax burden on it. Not one.

    You are being sarcastic right?
    Nope. The issue has already been dealt with in the law as is now. It's like arguing about what would happen if you inherited a unicorn.

    Right, well I guess I was forgetting that this is an American discussion, as my family has on several occasions had to sell farm land to pay off tax burden and inheritance tax, over a time period from the 1920s right through to this decade. So go figure

    Freedom for the Northern Isles!
  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited May 2009
    Kipling217 wrote: »
    ronya wrote: »
    Kipling217 wrote: »
    Actualy Marginal analysis fails to take the actual human Cost of Work into account(i.e. what I said). Reality analysis requires a something more complex than a subjective one more piece of good.

    *rage*

    You know what this feels like? Imagine an physicist talking about rockets. He says, okay, Newton's third law. For a rocket to go up, it needs to push downwards.

    And then someone comes in and says, actualy you're ignoring all the other factors that influence actual rocket motion. Real rockets are more complex than that.

    D:


    ... anyway. It is trivially true that there are a horde of factors influencing the 'actual human Cost of Work' besides the wage rate. However, it is also true that we are here concerned about wage changes via income tax - and the most empirically significant change imposed by a wage change, is, yes, on the wage rate. Hence marginal analysis, focusing on the marginal wage.

    That would be cool if Economics was a hard science instead a part of the humanities. It would also be cool if Marginal analysis could be used as a more than rule of thumb. If you could falsify and test the entire theory instead of only parts of it. I mean its one of the main critisism of marginal theory.

    Also real rockets are more complex then just the third law of motion and I was under the impression that we where discussing the real world and not some abstract land of make belive. What I was saying was that taxation in the real world is one of only many factors, if I stumbled into a theory discussion then that is fine and I will move on.

    But I took Econ 101 and even then I thought Marginal analysis was a shallow way at looking at things and if we are to disscus the impact of a consumption tax we should try for a more nuance view

    Yes, real rockets are indeed more complex than theoretical rockets. Nonetheless the core idea of a rocket is "push downwards to fly up", and if I say "in general, pushing down with more thrust will push the rocket up faster" I will be right, regardless of the complexity of rockets and the obvious limit cases of the rocket falling apart.

    That was my point: while reality is much, much more complex than the land of calculus and marginal changes, even in reality the direct impact of a marginal income tax on the wage rate and thence on the market wage rate is much, much larger than secondary effects through other factors influencing the market wage rate.

    Yes, it is un-nuanced. But in the context of what is the impact of a change in the income tax rate on the labor market-clearing equilibrium the nuances are about as useful as invoking, I don't know, the varying gravitational strength of the rocket as it loses mass. Does it have an impact? Yes. Does this impact matter? No. To argue otherwise you need to specify a plausible mechanism for it do so, and these typically apply in specific, typically short-run, situations - sticky wages? Shirking wage model? And so on.

  • taerictaeric Registered User, ClubPA regular
    edited May 2009
    Kalkino wrote: »
    Andrew_Jay wrote: »
    Quid wrote: »
    Oh, and the family didn't lose a ton of it as they didn't have it in the first place. The only reason they get any is because the person dying gives it to them.
    It's very easy to imagine an asset that several generations of a family would make use of, even if it's owned by one member. Take the cottage in my example. Grandpa buys a cottage for cheap 60 years ago, the whole family uses it and it has considerable sentimental value to everyone. It will probably increase in value owning to inflation and demand, and when he dies, hopefully, there will be enough liquid assets to pay the taxes on that cottage - if not, that cottage might be lost outright, solely because Grandpa died. So the inheritor's do stand to lose something - perhaps not their legal property, but access to something that previously had access to. In such a scenario the inheritance tax seems like a pretty arbitrary cash grab.

    This is what's known as the "family farm" scenario, and the reality is that there has never been a case where a middle class family had to sell off ancestral land to deal with the tax burden on it. Not one.

    You are being sarcastic right?
    Nope. The issue has already been dealt with in the law as is now. It's like arguing about what would happen if you inherited a unicorn.

    Not to nitpick here, but that isn't what your link says, is it?* It simply states that that is not the common case. It definitely acknowledges that a percentage of people have had to pay taxes on a percentage of an estate. It is not hard to imagine that some of them had to sell portions of the estate to cover said taxes. (You're link does point to special consideration under taxes for farmers and such. And it does expand more on the capital gains loophole I mentioned.)

    *Either that, or I think you misunderstood what we were saying. It isn't that people will lose their whole estate if something like this happens, but that they may have to sell portions of it to cover some tax liability if they do not have the capital. This sorta "sucks," but I don't think either of us were saying it is over the top and should be done away with.

  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited May 2009
    Kipling217 wrote: »
    I should perhaps clarify myself in my original statement; Taxation will of course play a role in any job market, but that people will place other "physical" factors before it and for the vast majority(90-99%) this will disincentivise them long before taxation becomes an issue. The remaining 10-1% are not really relevant in the debate.

    If I am wrong please tell me how and why. The taxing people until they stop working is my idea of a snarky comment. I will stop doing that now.

    Hm. Let me introduce you to my friend, ceteris paribus. Translation: hold all other factors constant. It doesn't matter if you consider a comfortable Aeron chair to be the top priority of your pet list of employment conditions, we're not discussing a tax on your chair.

    Now this is typically a bullshit assumption. It is possible, indeed virtually certain, that imposing a tax will inevitably have other impacts rippling through The Real World until it affects the market-clearing wage rate anyway. Maybe the chair will be less squishy. Let me underscore that this does not present a magically insurmountable problem for marginal analysis - it just leaves you a lot of partial derivatives to deal with and complicates the exercise vastly for dubious benefit.

  • monikermoniker Registered User regular
    edited May 2009
    ronya wrote: »
    Cervetus wrote: »
    kiry wrote: »
    Right just to clear up some misconceptions in this thread. All tax is distortionary and second-best. Income tax does disincentivize labour at the margin. Think about it this way: people can either choose to work and earn income for consumption or they can enjoy leisure time. By taxing income at the margin you change the point at which it is no longer worthwhile for them to work and instead consume leisure time. No matter if you feel "ok" with this (and taxing 90% or whatever on the richest) it is inefficient. But of course all taxes suffer from a similar inefficiency in that they distort someone's incentives. This is indisputable economics 101.

    This assumes that working harder is directly proportional to earning more. A high income tax could instead mean that a CEO decides to pay their employees more because heaping the wealth on themselves isn't worth the dirty feeling it leaves any more.

    Working harder is indeed not directly proportional to earning more (this actually follows directly from the marginal-labor analysis, so you're not making a particularly controversial point. Pay CEOs too high a wage and they take off and golf instead. Backward bending supply curve of labor, etc).

    However, this is generally not applicable In Real Life, in the same way the Laffer curve doesn't exist In Real Life: the model is theoretically valid, it just doesn't happen to apply to our particular universe. In general, in the neighbourhood of real-life labor wage phase space, a tax on labor disincentivizes labor. While it is theoretically possible for a tax on labor to incentivise labor, it just doesn't seem to occur frequently enough to be empirically significant.

    Isn't this basically working under the assumption of a 'rational actor' and completely ignoring the irrational motives of most people at the very top of the corporate world? Chiefly status and the use of their job as a means of attaining intangible benefits in comparison to others in their social circle. After awhile money stops being something you need and starts becoming the measure in a contest, or evidence of your being sooo much better 'where it counts' than that douchebag who manages to kick your ass at squash. &c.

    tea-1.jpg
  • EvanderEvander Registered User regular
    edited May 2009
    I thought Aeron chairs were the one constant exception to ceteris paribus.

    georgersig.jpg
  • monikermoniker Registered User regular
    edited May 2009
    Evander wrote: »
    I thought Aeron chairs were the one constant exception to ceteris paribus.

    Fuck Aeron Chairs.

    Charles & Ray Eames > You

    tea-1.jpg
  • enc0reenc0re Registered User regular
    edited May 2009
    moniker wrote: »
    Isn't this basically working under the assumption of a 'rational actor' and completely ignoring the irrational motives of most people at the very top of the corporate world? Chiefly status and the use of their job as a means of attaining intangible benefits in comparison to others in their social circle. After awhile money stops being something you need and starts becoming the measure in a contest, or evidence of your being sooo much better 'where it counts' than that douchebag who manages to kick your ass at squash. &c.

    Pet peeve: That's not irrational behavior at all. It may be unappealing, but your hypothetical executive is clearly rationally maximizing his own well-being.

  • DuffelDuffel Registered User regular
    edited May 2009
    kiry wrote: »
    You've completely misunderstood. People don't simply "keep working until taxes make them stop" but they do weigh up the costs of working (i.e. the opportunity cost of their lesiure time) against the benefit of additional consumption. While it might be true that in the real world effort is not perfectly correlated with wage (and thats a separate issue of contract theory) we can still generally say that there is a trade-off of leisure and hours worked for consumption. People only keep working until the taxes make them stop in the sense that it shifts the point where it is no longer beneficial to work compared to additional leisure time.
    People work because they need money to survive.

    You do realize that most people work as much as they do because they have to and if they don't they will a) have no home b) have poor health or c) starve

    As in, they cannot work enough and leisure time does not even enter into the equation

    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?

  • QuidQuid The Fifth Horseman Registered User regular
    edited May 2009
    Duffel wrote: »
    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?
    In theory Swiss doctors, lawyers etc. who deal with 80% at a certain point that were mentioned earlier.

    PSN: allenquid
  • DocDoc Registered User, ClubPA regular
    edited May 2009
    Duffel wrote: »
    kiry wrote: »
    You've completely misunderstood. People don't simply "keep working until taxes make them stop" but they do weigh up the costs of working (i.e. the opportunity cost of their lesiure time) against the benefit of additional consumption. While it might be true that in the real world effort is not perfectly correlated with wage (and thats a separate issue of contract theory) we can still generally say that there is a trade-off of leisure and hours worked for consumption. People only keep working until the taxes make them stop in the sense that it shifts the point where it is no longer beneficial to work compared to additional leisure time.
    People work because they need money to survive.

    You do realize that most people work as much as they do because they have to and if they don't they will a) have no future b) have poor health or c) starve

    As in, they cannot work enough and leisure time does not even enter into the equation

    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?

    When interviewing for jobs (over a year ago), I got offers from a couple of places, and I knew some of them would pay me a higher salary, but expect me to do overtime regularly, and some of them had a slightly lower salary, but 40 hours was the normal work week. I ended up going with one of the 40 hour places, because they also gave me 4 weeks of vacation plus a week of personal days.

    I think it's not that uncommon, when the economy is doing better anyway.

  • DuffelDuffel Registered User regular
    edited May 2009
    Quid wrote: »
    Duffel wrote: »
    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?
    In theory Swiss doctors, lawyers etc. who deal with 80% at a certain point that were mentioned earlier.

    Well, OK, that makes a little more sense. I assumed when they said "people" they meant, you know, everybody.

    @ Doc - well, I can see that, but when you hear about choosing "how much to work" I get the idea of people working up to the standard 40 hrs a week - expectations of overtime is of course something you're going to consider when job hunting. I was imagining day traders who just decided that, mmmyeah, we're just gonna work 18 hours this week.

    It probably comes from just about everybody I know being broke as hell and clamoring for overtime at jobs that they openly and vocally despise. We don't have a particularly good economic setup around here in the best of times and in the last couple of years it's gone from "bad" to "Les Miserables". But I guess that probably isn't the rule for everybody, even now (hopefully, anyway). Point taken.

  • kirykiry Registered User
    edited May 2009
    Duffel wrote: »
    kiry wrote: »
    You've completely misunderstood. People don't simply "keep working until taxes make them stop" but they do weigh up the costs of working (i.e. the opportunity cost of their lesiure time) against the benefit of additional consumption. While it might be true that in the real world effort is not perfectly correlated with wage (and thats a separate issue of contract theory) we can still generally say that there is a trade-off of leisure and hours worked for consumption. People only keep working until the taxes make them stop in the sense that it shifts the point where it is no longer beneficial to work compared to additional leisure time.
    People work because they need money to survive.

    You do realize that most people work as much as they do because they have to and if they don't they will a) have no home b) have poor health or c) starve

    As in, they cannot work enough and leisure time does not even enter into the equation

    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?

    Cute. While it is true that some people essentially work as much as humanely possible because their income is low the majority of people in developed countries do in fact have leisure time, they also funnily enough have enough income to consume things other than food and housing. People do tend to have some choice on hours worked or there is some choice in the jobs they take, the hours worked and the pay involved. I can become an investment banker or I can become a schoolteacher, that choice is in part a reflection of the relative value I place on leiure, consumption and work. Granted, this is not a universal principle and does not apply to every segment of the population, and it also holds to a varying degree over the cycle (i.e. how easy it is to get a job). But the basic point still stands that most people do make some choice on leisure and consumption. It may not be a perfect relationship as marginal theory might suggest but the basic point remains - that relationship exists and taxes distort behaviour.

  • monikermoniker Registered User regular
    edited May 2009
    Quid wrote: »
    Duffel wrote: »
    Also, what mythical workers are we talking about here that just get to pick and choose how much they work? Are we assuming the entire workforce is self-employed?
    In theory Swiss doctors, lawyers etc. who deal with 80% at a certain point that were mentioned earlier.

    Yeah, you generally don't hit the burdensome marginal tax rates until you start making quite a bit of monies and are likely in high enough demand that you can exert some influence over the amount of time you're going to be spending in the office.

    tea-1.jpg
  • ronyaronya Arrrrrrf. the ivory tower's basementRegistered User regular
    edited June 2009
    moniker wrote: »
    ronya wrote: »
    Cervetus wrote: »
    kiry wrote: »
    Right just to clear up some misconceptions in this thread. All tax is distortionary and second-best. Income tax does disincentivize labour at the margin. Think about it this way: people can either choose to work and earn income for consumption or they can enjoy leisure time. By taxing income at the margin you change the point at which it is no longer worthwhile for them to work and instead consume leisure time. No matter if you feel "ok" with this (and taxing 90% or whatever on the richest) it is inefficient. But of course all taxes suffer from a similar inefficiency in that they distort someone's incentives. This is indisputable economics 101.

    This assumes that working harder is directly proportional to earning more. A high income tax could instead mean that a CEO decides to pay their employees more because heaping the wealth on themselves isn't worth the dirty feeling it leaves any more.

    Working harder is indeed not directly proportional to earning more (this actually follows directly from the marginal-labor analysis, so you're not making a particularly controversial point. Pay CEOs too high a wage and they take off and golf instead. Backward bending supply curve of labor, etc).

    However, this is generally not applicable In Real Life, in the same way the Laffer curve doesn't exist In Real Life: the model is theoretically valid, it just doesn't happen to apply to our particular universe. In general, in the neighbourhood of real-life labor wage phase space, a tax on labor disincentivizes labor. While it is theoretically possible for a tax on labor to incentivise labor, it just doesn't seem to occur frequently enough to be empirically significant.

    Isn't this basically working under the assumption of a 'rational actor' and completely ignoring the irrational motives of most people at the very top of the corporate world? Chiefly status and the use of their job as a means of attaining intangible benefits in comparison to others in their social circle. After awhile money stops being something you need and starts becoming the measure in a contest, or evidence of your being sooo much better 'where it counts' than that douchebag who manages to kick your ass at squash. &c.

    Well, yes. Sort of. You're overestimating what rationality says, though - status and intangible benefits are just types of non-monetary pay. Rationality doesn't say that people may only care about money compensation (particularly if the non-monetary version is conveniently untaxed...).

    Rationality doesn't even say you have to prefer more money to less money (only that you have to be consistent about doing so). That people do often prefer more green is an empirical observation, so it's Only Mostly True.

    Also, see my earlier comment about Other Factors Influencing Job Decisions. I'll do the lame thing and quote myself, since it dropped to the bottom of the previous page:
    ronya wrote: »
    Spoiler:

    Hm. Let me introduce you to my friend, ceteris paribus. Translation: hold all other factors constant. It doesn't matter if you consider a comfortable Aeron chair to be the top priority of your pet list of employment conditions, we're not discussing a tax on your chair.

    Now this is typically a bullshit assumption. It is possible, indeed virtually certain, that imposing a tax will inevitably have other impacts rippling through The Real World until it affects the market-clearing wage rate anyway. Maybe the chair will be less squishy. Let me underscore that this does not present a magically insurmountable problem for marginal analysis - it just leaves you a lot of partial derivatives to deal with and complicates the exercise vastly for dubious benefit.

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