Second, and maybe this could be addressed, but the top 1% includes people that though they have salaries, a hefty percentage of their annual compensation is bonus or income from stock options. So the year to year income variation can be substantial. So the following type of situation happens, and in fact people hope for it--a CEO of a smaller company makes annual cash compensation averaging $750,000 per year. So some years he may make $500,000, other years $1,200,000. This would be someone with a lot of business experience--at least 25 years, worked there way up, outperformed their peers, and often have graduate level degrees. The payout he/she is hoping for is that the company wil grow rapidly, and the stock options end up being worth a whole lot of money. I know of a situation (actually more than one) where this was happening, the growth that is, and then unexpectedly another larger company bought this company. The price was excellent, and the CEO made $30 million, almost all of it being in stock options. If that company is in a high state tax state, the tax rate on that $30 million,,,,depending on what year it occurred over the past 15 years, be 46--51%. So with the current tax code, he/she gets about half of the payout. This is likely the big payout for such a person (maybe not--they may go run another company, or do something else), but basically they have worked hard all their life and are cashing in on the American dream. They would easily be in your 1% that particular year--I'd have to check the income levels, but they are likely in the top 1% in other years as well. Remembering that this is the type of story that American dreams are based on--people work their lives for a shot at this. How would you tax this individual?
Third, if your objective is to raise taxes on the rich, why not use a wealth tax? Why penalize the people working their tails off for these rewards. Why not tax those that have all of the money? and do it directly? I'm not concerned about taking the wealthy, personally, but I'm very concerned about distorting the incentives for performance and results.
I think I had another point, but i forgot and may come back to it.
Secondly, I'd believe that incentives aren't that different when the payout - 15million or 10million out of 30million that are more or less taxed. This form of payout is like winning the lottery - people don't really look at the actual payout, the only important thing being that it is "really high". The incentive won't be that different for that businessman - he wasn't anyway hoping for a specific sum.
The incentive for earning that much money will either be rid of work for the rest of one's life - and 10 million bucks are enough for that -, social status - if it is measured by money earned, since everybody is paying the same taxes and social status is relative, it won't matter much -, or power through having lots of money - as a democrat (not the political party, but the idea that everybody should have an equal say in the direction society takes) that kind of uneven power distribution is inherently bad.
About wealth tax - I want it too :) But the problems of extreme wealth appear as soon as it is formed ; in a political system where money and lobbying exist, wealth once formed is able to distort policies to preserve itself. Un roi sans divertissement est un homme plein de misères
Then what is your tax rate on the top .01%?
It's hard to react to your proposals without an understanding of what you mean at the top levels. Thank you.
Maybe this is a great time for France, or other European countries, who have more socialisti views than the US, to set an example for the rest of the world, and return to those marginal rates of 70% or above. If these higher marginal tax rates spur economic growth, pragmatists such as myself will immediately jump on board, and raise marginal taxes in our countries. With the French elections upon us, it should be a great time to put that idea before the people; and the following years will clearly show the results of those policies.
I love it when one country can learn from another, and can only encourage you in France to lead the way on this economic experiment. <seriously, no snark> it is a great opportunity to prove the philosophy, is it not?
If these higher marginal tax rates spur economic growth, pragmatists such as myself will immediately jump on board, and raise marginal taxes in our countries.
wc, you know perfectly well that "spurring economic growth" as sole criterion of choice of policy is one of the things most of us here reject. The point of progressive taxation is not to spur economic growth but to reduce inequality and increase social cohesiveness.
but I think it would be horrible to not dedicate ourselves to improving the lot of mankind worldwide. and historically that has not happened without growth, and I don't think it will in future. I view dedicating oneself to no growth, which I know is literally the goal of what a thought were a few (no pun intended) on the site, will condemn many in the world to a perpetual life of poverty and misery.
Can you point to a period in history where economic growth has been zero, and people have come out of poverty around the world?
More to the point, in the last two decades the more recent points of growth have been achieved without increase in welfare for most, in the industrialized world. The way our society is set up, growth only goes to the pockets of a small class. If we want to increase the general welfare of the population, growth in our current system has shown to be unproductive. Un roi sans divertissement est un homme plein de misères
