Earlier quoted context omitted.
Most suggestions of this nature fail to explain how they will deal with the problem of people just seeing there’s no point in trying for more. On a personal level, I’ve heard people from Norway describe this problem for personal income tax—at some point (notably below a typical US senior software engineer’s earnings) the amount of work you need to put in for the marginal post-tax krone is so high it’s just demotivati…
> the amount of work you need to put in for the marginal post-tax krone is so high it’s just demotivating This is a cliche you hear from right winger in any country that has a progressive tax system. Regarding Norway, taxes aren't in the same ballpark as in some US blue states. Also, it's a very simplistic view to think that people are only motivated by money. Counter examples abound.
Not a cliché - a fact. I'll explain to you.
The incentive structure of progressive taxation is wrong: it only works for the few percent that are extremely money hungry: the few that are willing to work for lower and lower percentage gains.
Normal people say "enough" and they give up once they have the nice house and a few toys (and some retirement money with luck). In New Zealand that is something like USD1.5 million.
I'm on a marginal rate of 39% in New Zealand. I am well off but I literally am not motivated to try and earn anything extra because the return is not enough for the extra effort or risk involved. No serial entrepreneurship for me because it only has downside risk. If I invest and win then 39%+ is taken as tax, but even worse is that if I lose then I can't claim my time back. Even financial losses only claw back against future income: and my taxable income could move to $0 due to COVID-level-event and so my financial risk is more than what it might naively appear.
Taxation systems do not fairly reward for risk. Especially watch people with no money taking high risks and pay no insurance because the worst that can happen to them is bankruptcy.
New Zealand loses because the incentive structure for a founder is broken. We are an island so the incentive structure should revolve around bringing in overseas income (presuming the income is spent within NZ). Every marginal dollar brought into the economy helps all citizens and the government.
The incentives were even worse when I was working but was trying to found a company. I needed to invest time, which had the opportunity cost of the wages I wouldn't get as a developer (significant risk that can't be hedged and can't be claimed against tax). 9 times out of 10 a founder wins approximately $0: so expected return needs to be > 10x. A VC fund needs something like > 30x return from the 1 or 2 winning investments. I helped found a successful business but high taxation has meant I haven't reached my 30x yet - chances are I'll be dead before I get a fair return for my risk. I'm not sure I've even reached 10x given I don't know the counterfactual of what my employee income would have become. This is for a business earning good export income.
Incentive structures matter - we understand that for employees - however few governments seem to understand that for businesses.
Most people are absolutely ignorant of even basic economics. The underlying drive is the wish to take from those that have more than them. We call it the tall poppy syndrome down here.
(reëdited to add clarity)