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"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 perh

"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.

mirajshah 8y ago
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 redistributed tax revenue. "Applied innovation", that which applies the outputs of basic research, includes the creation of Amazon.com or the latest improvements to Google search. This applied innovation is what gets disincentivized. I personally agree with you that this is a shaky, unsubstantiated foundation for an argument about optimal tax policy.
- yorwba 8y ago
  My immediate question is what the innovators do instead of innovating when the tax rate is higher. Taxes reduce income, but they do so monotonically without affecting the relative ordering of options, which is what matters for income-maximizing decision making. The "top" income may be numerically lower, but it remains at the top.
  - dahfizz 8y ago
    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).
    - sooheon 8y ago
      Since this is a claim asserted without basis (nobody can claim to know a counterfactual, let alone someone else's mind), I can also assert the opposite: Bezos didn't get to where he was without having a hell of a drive for success, and that drive is not 100% driven by monetary reward. Prestige, power, influence are all incentives built into us at the biological level, and if he gets to be the all powerful CEO of a $800B company instead of a $1T company, I don't imagine he'd throw in the towel.
      - mbrumlow 8y ago
        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 might have ended up knowing Jeff as the guy who has the largest POG collection.
        ip26 8y ago
        Ok so he's a guy with insatiable drive, a hunger for success, a need to be the best- aw, hell, tax rates are a bit too high, why not throw in the towel?
        wav-part 8y ago
        No he would use the same talent to minimize taxes. Why would anyone expect otherwise lol ?
        jacknews 8y ago
        I think we need a movement that glorifies the payment of taxes.
        sooheon 8y ago
        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, but it's life or death to the poor. There's a story about a society of peacocks who grew their tails so big and beautiful it started interfering with survival. They'd get it stuck in branches, be too slow to run from predators, etc. No one peacock was willing defect and shorten his tail because he'd lose out on the mating game. If they could all just get together and agree to shorten their tails by 25%, they could keep the relative pecking order and also be agile enough to survive.
  - kgwgk 8y ago
    Taxes may not affect the relative ordering of the (ex-post) outcome of the different options. But they can affect the relative ordering of the (ex-ante) expected value of the different options.
- nabla9 8y ago
  Applied innovation is risky requires investments into new devices, training, new logistic chains etc. >Hall and Woodward (2010) provide a different perspective. Using an extensive data set on venture capital funding from 1987 until 2008, they show that the returns to entrepreneurs are extremely skewed: nearly 3/4ths of entrepreneurs receive nothing at exit, while a few receive more than a billion dollars. An entrepreneur with a coefficient of relative risk aversion of two values this lottery with a certainty equivalent of only slightly more than zero. An implication is that the tax rate that applies to the successful outcome can have a substantial influence on entrepreneurial activity. I find it hard to see how taxation does not disincentivize applied innovation in the margin.
- scotty79 8y ago
  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"
pariahHN 8y ago
I think it could be reasonably argued that taxation, if not mismanaged, can actually increase net innovation by allowing more people the freedom, security, and education needed in order to be able to spend time innovating instead of surviving. The whole reason the priesthood (and to an extent nobles too) was the core of education way back in medieval times was because they didn't have to worry about surviving. On the other hand, peasants could barely innovate at all because they spent most if not all of their time in labor.

"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.

mirajshah 8y ago

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 redistributed tax revenue. "Applied innovation", that which applies the outputs of basic research, includes the creation of Amazon.com or the latest improvements to Google search. This applied innovation is what gets disincentivized. I personally agree with you that this is a shaky, unsubstantiated foundation for an argument about optimal tax policy.

yorwba 8y ago
My immediate question is what the innovators do instead of innovating when the tax rate is higher. Taxes reduce income, but they do so monotonically without affecting the relative ordering of options, which is what matters for income-maximizing decision making. The "top" income may be numerically lower, but it remains at the top.
- dahfizz 8y ago
  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).
  - sooheon 8y ago
    Since this is a claim asserted without basis (nobody can claim to know a counterfactual, let alone someone else's mind), I can also assert the opposite: Bezos didn't get to where he was without having a hell of a drive for success, and that drive is not 100% driven by monetary reward. Prestige, power, influence are all incentives built into us at the biological level, and if he gets to be the all powerful CEO of a $800B company instead of a $1T company, I don't imagine he'd throw in the towel.
    - mbrumlow 8y ago
      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 might have ended up knowing Jeff as the guy who has the largest POG collection.
      - ip26 8y ago
        Ok so he's a guy with insatiable drive, a hunger for success, a need to be the best- aw, hell, tax rates are a bit too high, why not throw in the towel?
        wav-part 8y ago
        No he would use the same talent to minimize taxes. Why would anyone expect otherwise lol ?
        jacknews 8y ago
        I think we need a movement that glorifies the payment of taxes.
      - sooheon 8y ago
        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, but it's life or death to the poor. There's a story about a society of peacocks who grew their tails so big and beautiful it started interfering with survival. They'd get it stuck in branches, be too slow to run from predators, etc. No one peacock was willing defect and shorten his tail because he'd lose out on the mating game. If they could all just get together and agree to shorten their tails by 25%, they could keep the relative pecking order and also be agile enough to survive.
- kgwgk 8y ago
  Taxes may not affect the relative ordering of the (ex-post) outcome of the different options. But they can affect the relative ordering of the (ex-ante) expected value of the different options.
nabla9 8y ago
Applied innovation is risky requires investments into new devices, training, new logistic chains etc. >Hall and Woodward (2010) provide a different perspective. Using an extensive data set on venture capital funding from 1987 until 2008, they show that the returns to entrepreneurs are extremely skewed: nearly 3/4ths of entrepreneurs receive nothing at exit, while a few receive more than a billion dollars. An entrepreneur with a coefficient of relative risk aversion of two values this lottery with a certainty equivalent of only slightly more than zero. An implication is that the tax rate that applies to the successful outcome can have a substantial influence on entrepreneurial activity. I find it hard to see how taxation does not disincentivize applied innovation in the margin.
scotty79 8y ago
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"

pariahHN 8y ago

I think it could be reasonably argued that taxation, if not mismanaged, can actually increase net innovation by allowing more people the freedom, security, and education needed in order to be able to spend time innovating instead of surviving. The whole reason the priesthood (and to an extent nobles too) was the core of education way back in medieval times was because they didn't have to worry about surviving. On the other hand, peasants could barely innovate at all because they spent most if not all of their time in labor.