France to introduce 75% income tax rate on earnings above 1 million euros

KiwiKid

I think capitalism can be adequately described as "there are winners and losers, but as time goes by, both groups enjoy higher standards of living. Wealth is not a zero-sum game."

NeoDevin

I think both sides of this discussion are coming at it backwards. On the right, we have Russ arguing "everyone gets what they deserve", on the left, we have Ryan arguing "there's no way anyone deserves to make that much money" (I'm paraphrasing and exaggerating here, as the specifics aren't very relevant to my point, so don't get bent out of shape if you feel I've slightly misrepresented one side or the other).

In my opinion, it is better to start from the question: "What is the minimum standard of living our society should accept for it's members?" I think we can all agree (maybe not?) that basic police protection, rule of law, emergency medical services, etc. are a minimum standard, but disagree on other things (other health care services, minimum housing standards, fire protection, etc.). Once a society decides on some minimum threshold below which we consider living to be "inhumane" (and different societies could well decide on different standards), then we can figure out how much it will cost. Add in the cost of things that the society considers valuable, but that the market is less well suited to provide (anyone here in favor of fundamental physics research at the LHC?), and then we can start talking about what a reasonable tax rate is.

If we start with the question of: "What is the purpose of the taxes in the first place?" We can come up with a tax rate designed to address that.

Additionally: To address the argument that high tax rates discourage: innovation, individual productivity, etc.; when applied to the super-wealthy (we can argue about where to draw the line of super-wealthy later, if you insist), this argument is absurd. After some point¹ people stop deriving any additional satisfaction from increased income anyway. Beyond this point people are working strictly because they want to work, not because additional income helps them out. Think of it this way, is Bill Gates really motivated to work by the thought of being worth $62 billion, rather than his current $61 billion? Would he be discouraged from doing anything if his next billion was taxed at 99%? Alternatively, would he be motivated to do anything if his next billion was completely tax free? I think the answer to all three of these questions is a clear "no". Bill Gates will continue to do whatever the heck Bill Gates feels like doing. To sum: Anyone making more than, say, $1 million/year is not motivated by the next million, rather they are motivated by what they are accomplishing. Thus, taking away some large portion of that next million will not have a significant impact on their desire to continue producing.

1 Link "Emotional well-being" plateaus at ~75,000 USD, while "life evaluation" rises with the log of income (which means diminishing returns).

Oltz

I see what you are trying to say (I think) but you have a major flaw in your example. Income is not wealth Bill Gates does not make 61 Billion a year in fact is just under 1 million dollars according to what I can google with bonus's. He would not even be affected by this Tax.

Second when somebody earns a salary the point is it gets spent. Either they directly use it for good/services or they invest it or they put it in a bank who then buy bonds or loans it out to another party.

Third CEO's tend to get the compensation they get for several reasons 1 few people can handle the job that needs to be done and do it well 2 most do not last long and it is highly unlikely to ever get a position like that again once released by a company Average tenure is 6.6 years down form 8 in the 90's and is only 4 years for outside company highers.
http://www.businessinsider.com/short...ure-ceo-2011-5
Would you take a job knowing that it will likely only last for a few years and that you would never be able to get a job after it regardless of your performance for less then a butt ton of money and a nice severance package? I would negotiate the best possible compensation wouldn't you ?

You get what you pay for... when you have somebody making billion dollar choices you need to trust them with every ones money and jobs on the line.

Most people making over a million dollars a year have a short earning window and no guarantee of returning to that level (athletes, executives,actors,musicians). Some consultants, lawyers and doctors can reach this level of income and thse are the ones who will simply choose to stop taking projects and only work part of the year if they are taxed to heavily.

If offered a 1 million dollar 3 month consulting job or court case after just completing one knowing you would only make 25% of that would you bother or would you take the rest of the year off?

How about the third quarter? or the 4th?
If you could work half a year and take home 1 million (~25% effective rate on the first million) would you work the second half of the year for another $500,000 or would you stay home with your family?

russ_watters

Fair enough, though that last part implies that you think wealth is a zero sum game - that if one person increases their wealth, another must inevitably lose some. That's clearly not the case, otherwise the average wealth and standard of living would not be increasing.

[edit: Oops - as kiwikid pointed out already...]

russ_watters

Sorry, I still disagree with your framing. Police forces and rule of law are structural components of government that do not directly translate into standard of living except perhaps in their limited domains. Having a police force will not prevent you from starving to death or take care of you if you lose your job or are sick.

So while pretty much all westerners agree on those core functions of government, the disagreement starts with whether the government is responsible for your standard of living at all. This question is typically bypassed or assumed that the answer is yes (as you did), but historically, the answer has been no. It is only the past 100 years or so that people have started to assume the answer to be yes. Now I still think that this is an oversimplification. For the record, I'm not against social safety nets. But a safety net is not the same thing as a government provided minimum standard of living. A safety net covers you in case of actual need - a government provided standard of living means the government provides it whether you need it or not -- and in some cases removes your freedom to provide for it yourself (see: healthcare in some formulations of nationalized healthcare, social security). Why do I think this is important? Two reasons:

1. I like freedom and this idea is a violation of the historical concept of individual rights.
2. I think it is a bad idea bordering on immoral for a government to force-ably lower peoples' standard of living.
This isn't just about those tiny handful who make that much money. It can't be since that tax doesn't put a dent into a country's budget. There is a big difference in lifestyle between $50,000 and $100,000 in income and so the choices you make there can be heavily influenced by tax policy. In the US, our tax system is so progressive that few people under $50k pay any federal income tax while those who make $100k pay near the highest. There are a lot of people in these income ranges - a lot of payers and non-payers.

As is often the case, people who think in that fashion completely ignore at least that 47% of this issue: Yes, we can focus on what a high tax rate does to the 1%, but we also need to discuss what nonexistent tax rate does to the 47%. It may not be nice to think that taxing a large fraction of the population nothing to run the basic functions of their government might encourage sub-par performance, but the incentives and disincentives are real on both sides of the issue.

In any case, I am not comfortable morally with telling someone else, "I think you've had enough." Who am I to judge that?

russ_watters

Quick caveat to this: I'm also not, per se, against the government forcing you to be responsible. Plenty of people have proven that they are incapable of being responsible and if they had been responsible, they wouldn't need the government safety net (uh oh, did I just say....?). The problem is that governments are also irresponsible. So now we have a social Social Security system that is a legalized version of what Bernie Madoff is now in jail for; a ticking time-bomb on a slower fuse, since the government has a larger pool of suckers to siphon money from than Madoff did.

The government said to my grandfather -- you'll spend your money instead of saving it for your retirement, so give it to me and I'll save it for your retirement. Then immediately after getting the money, the government spent it, making exactly the mistake SS was created to fix -- but now on a national level, effecting hundreds of millions of people. This is why I would have favored a privatized version much like an IRA or 401k, with strong contribution incentives or even mandatory contributions, just without the government having the ability to Madoff away with the money. We're in it now, though and we can't just pull the plug and privatize it, so I'm seriously worried that it could sink us.

Pythagorean

I thought the baby-boomers were the ones spending it? The problem being that social security gets paid by me now, and recieved by old people now, but if the populations don't match... like say, there's more old people than young people.... because of a baby boom... then there's more taking than giving going on.

russ_watters

Yes, that's what a pyramid scheme is. I gave the starting point as a punctuated example, but yes, the government is continuously getting and spending the money that it doesn't immediately need to pay out (the money it is supposed to be saving). Back when the contributions were vastly more than the payouts it may have been easier to ignore, but the government has been spending surpluses instead of saving since the beginning I think.

The only way for a pyramid scheme to be successful forever is for the pyramid to be pyramid shaped forever -- which means exponentially increasing population growth, forever. As population growth slows, the pyramid narrows into a tower. So don't make the mistake of thinking the baby boomers are an unfortunate and temporary bubble after-which the shape of the pyramid will reassert itself. It won't. And don't make the mistake of thinking people assumed 75 years ago that SS would be viable under the pyramid scheme model forever: they knew it ultimately had to collapse.

This is also part of the reason Europe is having a worse time than the US: Their pyramid is already a vertical tower, while ours isn't quite vertical yet.

NeoDevin

Police forces and the rule of law strongly contribute to standard of living in virtually every domain they act in. They're to prevent others from taking what you earned through your hard work, they're to prevent you from getting assaulted/murdered because someone disagrees with you, and they're (supposed) to prevent corruption and illegal finance schemes from bringing down the economy. All of these things (and many more) contribute directly to your standard of living (see Somalia for a counterexample). While the police force and the rule of law doesn't directly affect every aspect of your standard of living, it does have a strong impact on many aspects of it.

And a health care system won't prevent you from being shot in the street... What's your point?

Having established already that we agree certain aspects of your standard of living should be ensured by the government/society (after all, there's no fundamental reason that the government should provide a police force, you could hire your own security if you have the money), we're back to my original point of arguing extent. If you want to argue that they shouldn't provide anything beyond the rule of law, that's a valid argument to make. What's not a reasonable argument is that the rule of law is somehow not a factor in standard of living.

It's not an oversimplification at all. As a society, we should first decide which services ought to be provided by the government, and then set the tax rate to be sufficient to provide them.

Funny, I thought this thread was about a tax on those making more than $1 million/year...

Ryan_m_b

I find it best not to assume what someone means when they say "left" or "right" these days as there are so many understandings of the term (especially when you cross the atlantic) that most discussions become bogged down in arguments that are the result of different definitions. An excellent example of the latter is this discussion in which it is clear that you and I have very different ideas of what socialism actually is.
I'll accept that this is how you intend them though I do not recognise this as a definition that everyone uses, mainly because this doesn't take into account social/civil ideologies and focuses on economics.
No I don't think that's true. Obviously providing someone with something at no cost to them will affect their productivity, the idea is to increase their productivity by giving them a good base to work on and even if they don't it's largely tangental as the efforts are morally rooted rather than economically.

Also (and I can't stress this enough) socialism does not necessarily preclude capitalism. Unless of course your definition of socialism is a centrally planned economy in a society that does not recognise private property (which would be a strange and narrow yet not uncommon definition).
[QUOTE=russ_watters;3989354]I disagree with your framing here, as I've said above socialism does not equate to centrally planned economies with no private property. Yes capitalism has been a strong force in our recent history and no one can deny that but there has never been a totally laissez faire economy, rather all countries practice some form of socialist policies (though they may not define them as such).I'm sorry you are upset but I wasn't suggesting that rich people only get rich by being "leeches" as you referred to earlier. In reality some people work damn hard and get rich, others work damn hard and get poor. Conversely some people don't work at all and get rich, some people don't work at all and get poor. A lot of people would say that this is unfair.

I wasn't even arguing any of these point particularly, just bringing them up for discussion.

2AlphaMales?!

1. Due to the marginal utility of money (AKA - you don't need that 16th Gold Plated Lama) the difference in the wealth related "standard of living" becomes less apparant over time, if not negligible.

2. If all the unnecessary economic activity (eg. the military industrial complex/double glazing and insurance salespeople/chuggers etc etc etc) were cut out, and the remaining necessary work fairly evenly distributed amongst the population, people would doubtless have a vastly improved work/life/hobbis(education) balance. Not to mention the fact there wouldn't be any more unemployment, and the likely positive social impact of a reduction in wealth inequality.

3. If the polar ice caps do melt due to all the unnecessary economic activity everybody will be much worse off. Contrary to what some people think nations aren't growing - sea levels are rising.

KiwiKid

Sigh.

Let me put this as simple as possible: capitalism works on the presumption that people CARE about these things, and are willing to spend money to deal with them. If they don't, then yes, the polar ice caps melt and all other sorts of funny stuff do happen. This is no different in a socialistic society. Basically, you have two options: let 'the people' decide what happens (which leads to the situation we have now), or create a dictatorship with a leader who knows better.

You can't have a democracy AND a list of things you decide they *must* want to achieve.

2AlphaMales?!

Lots of people are incredibly selfish and or stupid and or short sighted. Some are even psychopathic. Such people are often inordinately rich and powerful in capitalism. You must know this?!?!

You seem to be confusing free market capitalism and democracy. In case you hadn't noticed, in the USA the socialists ARE the democrats. The libertarians are the GOP.

russ_watters

Keeping you from getting shot on the street is a negative protection of rights: it's the government stopping people from doing things to you. Giving you food is a positive action: giving you something. That's the difference.

Fine - crime is a standard of living issue, but it is not something that citizens have held primary responsibility over pretty much since the concept of government was created: do you at least recognize that your "extent" is a massive and fundamental shift from what the role of government was prior to 1930? You framing everything as standard of living issues glosses over this fundamental shift.

Ryan_m_b

Surely it depends on what the populus want in a government? If the majority of people just want a government that enshrines certain rights and acts purely to prevent other people (or possibly natural phenomenon) from violating them then fine. But many people want more from their government and see positive action as you call it as a necessary part of that.

russ_watters

I meant negatively and I'm not sure you acknowledged that. Just to be clear: you're saying/acknowledging that the hope is that the decrease in productivity caused by not having to work as hard to get what you need/want would be balanced-out by an increase in productivity due to better health of the population (for example), right? The problem I see with that is that many aspects of these policies don't have any means I can see for providing a positive impact on productivity. Unemployment compensation and welfare programs the biggest examples: they directly incentivize not working. I don't see how an incentive for not working can be an incentive to work/work harder. Could you explain?

Furthermore, and more importantly, this contradicts or at least has nothing to do with the (your) guiding principle for implementing socialistic policies: fairness/equality/providing a minimum standard of living. If someone is has a right to a minimum standard of living just by being born, their productivity is completely irrelevant to whether or not they should receive social help.

Following that a little further and assuming you have considered that problem, am I right in concluding that the right to a standard of living is the dominant consideration: that even if it reduces productivity, you still want it? The problem with that logic is that while you believe that this will increase productivity, if you're wrong, you'll still ride the plane all the way into the ground. This is precisely why I urge caution in going down that road and more to the point, I think it is what we're seeing happening today. Our countries have huge debts largely due to underfunded social programs. We've been borrowing money to boost our standard of living. In other words: we don't have the productivity required to maintain the standard of living being demanded via socialistic policies.....

....or perhaps, that's the point of this law? There's enough money if we take more from the rich? Well this one isn't enough. You'll have to reach much further down the ladder to find that money. How far are you willing to go? It is a spectrum (hence the left/right thing). Again, the center would be tough to draw but someone who is near the center would accept aspects of both socialism and capitalism. Someone a little to the right would be primarily (but only by a little) capitalistic while someone a little to the left would be primarily (but only by a little) socialistic. The point is that some policies move us to the left on the spectrum, some to the right.

So for clarity: yes, complete socialism would preclude capitalism completely (and vice versa). Yes, it would be complete government (or some other collective) control/ownership. It is right there in the first line of the definition: http://en.wikipedia.org/wiki/Socialism
"Socialism /ˈsoʊʃəlɪzəm/ is an economic system characterised by social ownership and/or control of the means of production and cooperative management of the economy..."
Clearly. The point is that 200 years ago they were much closer to that side of the spectrum -- so much so that people discussed/attempted to achieve true laissez faire. Today, no one does, but people do discuss/attempt to achieve true socialism. We are quite clearly moving from right to left on that spectrum. Even if you didn't grasp what I was getting at before, do you at least agree with this historical fact now that you understand what the measuring stick looks like? I was sure that you didn't, but nevertheless, that's a pretty unfortunate oversimplification you made. Such a statement shouldn't even be a significant part of modern economic thought: exploitation was the subject of reforms in the late 1800s to early 1900s and there's really not much left to be done on that front. Most of the things Marx was complaining about when he wrote what you were paraphrasing (I'm pretty sure that was Marx) simply don't exist in the West today in any meaningful amount.

NeoDevin

Wikipedia disagrees with you. Socialized medicine was first implemented in the 1880s. And that was in response to public sentiments that had probably been building for decades before that. That's also neglecting tribal societies where everyone in the tribe would contribute to support the local 'doctor', which is also a form of socialized medicine (nobody denied care, doctors payed by the public). So the idea of socialized medicine in some form or another alone dates back at least 150 years, probably much more (my understanding is that Native American tribal structure was fairly consistent for a few thousand years before Europeans showed up). Other standard of living issues have been provided by the government for thousands of years: Building codes ensuring that people have safe houses date back at least as far as 229 C.E. Communal road building enabling easier transportation (which also affects standard of living, though perhaps less directly) goes even farther back, to 4000 or 5000 B.C.E.

My point here is not to argue whether or not the government should be providing any particular service. After all, you could let the market decide whether or not to buy buildings that may collapse, let private companies set up toll roads, let private doctors/hospitals provide health services, and even let private companies sell security services. Arguments can be made for or against any of these. My point here is that this whole discussion about what is or is not a fair tax rate is backwards. The tax rate should be a result, not a premise. We should not be asking: "This is an appropriate tax rate, now what services can we afford to provide?" We should instead be asking: "These are the services we think everyone should have access to, now what is the tax rate we require?"