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Taxing Top Incomes in a World of Ideas [pdf]

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Re: Taxing Top Incomes in a World of Ideas [pdf]

#41

Post by scotty79 »

mirajshah wrote: post #9
jacknews wrote: post #6

"by slowing the creation of the new ideas ... top income taxation ..." Is this proven anywhere? I don't believe high taxation reduces innovation, in fact perhaps the opposite is true overall.

The paper assumes that innovation is incentivized by the "top" income received through it by the innovator. Under this assumption, since taxation reduces "top" income, it thus disincentivizes innovation. The introduction further clarifies the author's definition of the type of innovation that gets disincentivized. "Basic research", i.e. innovations in our understanding of our world, are readily funded by the redistri…

Even if innovation is motivated by top income we don't know how exactly they are related. For example if top income is taxed it's still top in relation to other income. With people usually relationships matter not the absolute values.

Also even if people work for a chance to be in "top" the probability of actually getting there might be irrelevant. People horribly overestimate probability of positive outcomes. Basiaclly 1 in a million and 1 in a billion is a the same for people. What's more they don't translate both to "impossible" but to "it's gonna be tough but I got a shot"

Re: Taxing Top Incomes in a World of Ideas [pdf]

#42

Post by hackeraccount »

cjg wrote: post #20

What this fails to account for is that the tax raised by taxing the top incomes also has benefits for society - through government spending. It's a trade-off: higher tax revenues vs higher innovation. I suspect that the impact of higher taxes on innovation would be relatively small compared to the benefit of higher tax revenues.

Why would there be more benefit to me if money is spent by my congressman vs. by Bill Gates?

This is the difference between spending other people's money and your own.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#43

Post by nabla9 »

soVeryTired wrote: post #38
nabla9 wrote: post #23

Earlier quoted context omitted.

That's exactly what he has done and there is nothing wrong with that when it's done right (Charles I. Jones is a top man). >Does anyone really believe that 1/ the "stock' of ideas can be measured by a real number and 2/ national output is proportional to some power of the "stock" of ideas? System dynamics can be modeled with numbers that can never be measured or are hard to measure. The exact number of working hours…

> That's exactly what he has done and there is nothing wrong with that when it's done right (Charles I. Jones is a top man). That sounds like an argument from authority to me. If he decides to use the form Y = A^b L and I decide to use, say, a confluent hypergeometric function, who's to say who is correct?

> who's to say who is correct?

Someone who knows the economic growth theory better than I do. I have studied growth theory maybe 16-20 hours total. I'm not humble guy but I know I don't have the ability to join the debate and argue against. My hope is to learn the gist of the paper. In my comments I didn't try to argue for or against, I was trying to describe what the article is about.

Assuming that you are random guy in the internet who suffers from insomnia, I think your level of knowledge is even smaller than mine.

> If he decides to use the form Y = A^b L

That form is not his idea. It's very basic for all steady-state growth models. These models require strong assumptions like Cobb-Douglas production function, labor-augmenting technological growth and linear differential equation (only asymptotic requirement). To go trough all the assumptions would require a seminar.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#44

Post by diggernet »

jacknews wrote: post #33
dahfizz wrote: post #11

Earlier quoted context omitted.

The absolute values do matter. If Jeff Bezos expected Amazon to be much less profitable as it is for him, he may have decided to just stop and retire once it provided enough passive income to let him live comfortably. He would be paid more for the added time and stress of continuing to grow Amazon, as you say, but if that marginal income approaches zero, it just isn't worth it (and we are left without Amazon).

Come on, I don't believe Bezos would put on his slippers and retire to a country cottage because tax rates were too high. While money is certainly an incentive to innovate, it's also not the only incentive (and probably far down the list if you're already rich), and creative, driven people will do what they do whether or not a chunk of their "earnings" gets given/taken back to the society that enables them to do it.

True, but it's not just an incentive, it's also an enabler. SpaceX was on the verge of going broke, and their first successful launch was do or die. Had Musk been taxed more heavily before that, and had substantially less money to pour into the company, they likely would not have survived to make that launch.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#45

Post by soVeryTired »

nabla9 wrote: post #43
soVeryTired wrote: post #38

Earlier quoted context omitted.

> That's exactly what he has done and there is nothing wrong with that when it's done right (Charles I. Jones is a top man). That sounds like an argument from authority to me. If he decides to use the form Y = A^b L and I decide to use, say, a confluent hypergeometric function, who's to say who is correct?

> who's to say who is correct? Someone who knows the economic growth theory better than I do. I have studied growth theory maybe 16-20 hours total. I'm not humble guy but I know I don't have the ability to join the debate and argue against. My hope is to learn the gist of the paper. In my comments I didn't try to argue for or against, I was trying to describe what the article is about. Assuming that you are random gu…

Ok, let me try this again. Have you, (presumably) an economics student, ever seen an empirical justification for a Cobb-Douglas production function? Would I see such a justification if I opened, say, Mankiw's textbook?

If not, how do you know the assumptions are reasonable?

Re: Taxing Top Incomes in a World of Ideas [pdf]

#46

Post by dahfizz »

sooheon wrote: post #40
mbrumlow wrote: post #25

Earlier quoted context omitted.

I think you underestimate how much welth is used as a proxy to guage prestige, power, and influence amung the super rich. People with drive don't do it to just be one of millions to reach a given milestone. People with real drive don't enjoy doing something that many before them have done. Guys like Jeff clearly set out to be the best. Breaking the score bord could very well prevent something like Amazon, and we migh…

I don't buy this, because we're not proposing to only tax Bezos until he has the exact same net worth as Joe Schmoe who collects POGs--this is a straw man. If we tax all the uber-rich 5% more, everyone would be in the exact same position on the leaderboard, just with slightly deflated numbers. We'd be having the conversation about breaking the $1T barrier 12 months down the line, BFD! It's just numbers to the rich, b…

The problem with these game theory "let's just all work together" solutions is that they are not stable points. It is in everyone's best interest to undercut the cartel. Even if you did get all the peacocks to shorten their tail, if there is some advantage to having a larger tail, it is irrational to expect noone to try and grow it out again.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#47

Post by nabla9 »

soVeryTired wrote: post #45
nabla9 wrote: post #43

Earlier quoted context omitted.

> who's to say who is correct? Someone who knows the economic growth theory better than I do. I have studied growth theory maybe 16-20 hours total. I'm not humble guy but I know I don't have the ability to join the debate and argue against. My hope is to learn the gist of the paper. In my comments I didn't try to argue for or against, I was trying to describe what the article is about. Assuming that you are random gu…

Ok, let me try this again. Have you, (presumably) an economics student, ever seen an empirical justification for a Cobb-Douglas production function? Would I see such a justification if I opened, say, Mankiw's textbook? If not, how do you know the assumptions are reasonable?

> Would I see such a justification if I opened, say, Mankiw's textbook?

Yes. Starting page 58. Cobb–Douglas was derived to match empirical observations (constant factor share, constant capital and labor share) and it was proved to have some nice properties.

Note that Cobb–Douglas only approximately true starting point. It does not capture everything. For example capital and labor shares are not completely constant. The simplicity of the function makes it useful and it's taught in basic econ. classes because it holds true well enough. You need slightly more complex models or relax the function for some stuff.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#48

Post by darawk »

sooheon wrote: post #16
darawk wrote: post #7

Earlier quoted context omitted.

Totally, but the point of this paper isn't the people who already have $10mm. It's the people who want to get there , and what they're willing to sacrifice to do it. Building a massive business like say, Amazon, takes enormous personal sacrifice and risk. The high incomes that result from it incentivize that sacrifice/risk. They cause the person who currently has relatively little, to risk what they do have to produc…

Why do you equivocate progressive taxation with "truncating" income at a certain level? It's not a low-pass filter.

Just because it's easier to state. The same reasoning applies for a progressive tax rate system with extremely high top marginal rates.

Re: Taxing Top Incomes in a World of Ideas [pdf]

#49

Post by soVeryTired »

nabla9 wrote: post #47
soVeryTired wrote: post #45

Earlier quoted context omitted.

Ok, let me try this again. Have you, (presumably) an economics student, ever seen an empirical justification for a Cobb-Douglas production function? Would I see such a justification if I opened, say, Mankiw's textbook? If not, how do you know the assumptions are reasonable?

> Would I see such a justification if I opened, say, Mankiw's textbook? Yes. Starting page 58. Cobb–Douglas was derived to match empirical observations (constant factor share, constant capital and labor share) and it was proved to have some nice properties. Note that Cobb–Douglas only approximately true starting point. It does not capture everything. For example capital and labor shares are not completely constant. T…

Ok, now we're getting somewhere. Mankiw says [0]:

Paul Douglas was a U.S. senator from Illinois from 1949 to 1966. In 1927, however, when he was still a professor of economics, he noticed a surprising fact: the division of national income between capital and labor had been roughly constant over a long period. In other words, as the economy grew more prosperous over time, the total income of workers and the total income of capital owners grew at almost exactly the same rate.

Douglas' evidence isn't actually presented in Mankiw, it's just stated as fact: do note that I asked for empirical evidence in my earlier post. The observations are over 90 years old, and the government didn't even collate national statistics in the 1920s. Do they still hold? Do they hold in non-US countries?

I'm not these modelling choices (cobb-douglas above, and the assumptions in TFA) are wrong, I'm saying that they're unjustified.

[0] http://irfanlal.yolasite.com/resources/N.%20Gregory%20Mankiw...

Re: Taxing Top Incomes in a World of Ideas [pdf]

#50

Post by davidivadavid »

alkonaut wrote: post #24
dahfizz wrote: post #11

Earlier quoted context omitted.

The absolute values do matter. If Jeff Bezos expected Amazon to be much less profitable as it is for him, he may have decided to just stop and retire once it provided enough passive income to let him live comfortably. He would be paid more for the added time and stress of continuing to grow Amazon, as you say, but if that marginal income approaches zero, it just isn't worth it (and we are left without Amazon).

But does Amazon provide a large net value? Google I can understand provides a service we didn't have, but amazon just provides "selling stuff" - something that was possible before too. If anything, Amazon now sells tons more stuff using a lot fewer jobs, so what is the net contribution Amazon does to the US economy in terms of job creation, tax revenue, and the Global ecnonomy? If anything, a lot of the megacorps jus…

The net contribution is consumer surplus.
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