5 ms·

It's not sufficient to make cliffs impossible, you just never want the effective marginal tax rate go above a certain threshold. It's insane that we cap margin

It's not sufficient to make cliffs impossible, you just never want the effective marginal tax rate go above a certain threshold. It's insane that we cap marginal tax rates for the wealthy below 50% “because they need incentives to work harder” yet the working class family is facing an effective marginal rate near 100% because of reduced benefits. The solution would simply be to stop making benefits decrease when salary goes up. “But it's going to be insanely expensive” one may say, but it's an accounting illusion. All we need to do to break the illusion would be to stop counting gross public spendings and taxes and instead count the net public spendings/taxes for each individual (that is, over the whole population you take the difference between what they pay and what they receive and that gives you how much they contribute or how much they cost, instead of the current accounting system where we count people paying for their own benefits). What's really expensive is the economic inefficiency of the current system.

CalRobert 11mo ago
I agree with you, but for what it’s worth I live somewhere top marginal rates are about 50% and indeed 32 hour weeks are very common. I think this is a good thing though.
dgoldstein0 11mo ago
> The solution would simply be to stop making benefits decrease when salary goes up. That's an option, and I'd be interested in how the math works especially with predictions of how the economy would respond. That said I don't think not decreasing benefits is an important requirement. But net income (benefits + earned income - taxes) should be strictly increasing with earned income, and probably at a rate of at least 50% but ideally higher than that up to some reasonable definition of middle class income. It should never be the case that if you earn more you can end up worse off.
- littlestymaar 11mo ago
  > That's an option, and I'd be interested in how the math works The math works because the derivative of a constant is zero, it's that simple. > That said I don't think not decreasing benefits is an important requirement. But net income (benefits + earned income - taxes) should be strictly increasing with earned income, and probably at a rate of at least 50% but ideally higher than that up to some reasonable definition of middle class income. Exactly, it doesn't need to be fixed, we could also have decreasing benefits, simply with a much lower rate of decrease (ideally the rate of decrease should be the marginal tax rate for this income). But in practice such a system would be much more complex than a flat benefit system for little gain (the more limited the decrease rate is, the closer to a flat rate your public spending would be).
eru 11mo ago
Yes, looking at the net transfers makes more sense. However, net transfers aren't a function of income alone. They depend on lots of factors, because they are plenty of benefits that depend on more than income and plenty of taxes like that, too. Eg capital gains taxes and property taxes and sales taxes and tariffs don't depend on your income.
zozbot234 11mo ago
Actually, optimal taxation models tend to show that a base transfer at zero income with an initially "high" marginal rate for clawing back the transfer at the lowest end (but still no higher than 100%, and falling very quickly as earnings increase!) works very well. (Marginal rates then rise progressively for higher incomes, and paradoxically become lower again at the very top end, trending towards zero at the extreme top-end of the scale. This is actually a consistent result in non-linear incomes taxation models; the very top earner should face zero marginal tax on the very last cent she earns!) The intuition is that you only "feel" the high marginal rate if you earn very little, which impacts very few people; but the effect of making the break-even point more manageable with lower marginal rates for most earners is felt throughout the incomes scale. What really screws up things is higher-than-100% marginal rates, which are regrettably common in real-world systems amd completely useless.
- littlestymaar 11mo ago
  I'd be curious to read more about that, because none of what you've written makes any sense to me right now. (Why would we want zero marginal tax on top earner who already get zero marginal utility for her money in the first place ?).
  - zozbot234 11mo ago
    The zero marginal tax only strictly applies to the very last cent the extreme top-earner is expected to earn in the tax period. The idea is that at this theoretical extreme top-end tax bracket basically no one is paying infra-marginal taxes, hence the share of the incentive effect compared to the pure revenue effect is maximized. So you'll want to ensure that this extreme top-earner is only paying in lower, infra-marginal tax brackets, which have no incentive effect on her. This cannot be done literally because of randomness and uncertainty, but the broad effect of paradoxically lowering optimal marginal rates at the top end is nonetheless real.
    - littlestymaar 11mo ago
      It's only real if you assume top earners have monetary incentives to work more, which is a very bold assumption in a world where the top earners don't even earn money through their work in the first place. And again, the utility of income for an individual is logarithmic with regard to their income, which means the marginal utility is the inverse function and that never stopped the top earners to want more.

CalRobert 11mo ago

I agree with you, but for what it’s worth I live somewhere top marginal rates are about 50% and indeed 32 hour weeks are very common. I think this is a good thing though.

dgoldstein0 11mo ago

> The solution would simply be to stop making benefits decrease when salary goes up. That's an option, and I'd be interested in how the math works especially with predictions of how the economy would respond. That said I don't think not decreasing benefits is an important requirement. But net income (benefits + earned income - taxes) should be strictly increasing with earned income, and probably at a rate of at least 50% but ideally higher than that up to some reasonable definition of middle class income. It should never be the case that if you earn more you can end up worse off.

littlestymaar 11mo ago
> That's an option, and I'd be interested in how the math works The math works because the derivative of a constant is zero, it's that simple. > That said I don't think not decreasing benefits is an important requirement. But net income (benefits + earned income - taxes) should be strictly increasing with earned income, and probably at a rate of at least 50% but ideally higher than that up to some reasonable definition of middle class income. Exactly, it doesn't need to be fixed, we could also have decreasing benefits, simply with a much lower rate of decrease (ideally the rate of decrease should be the marginal tax rate for this income). But in practice such a system would be much more complex than a flat benefit system for little gain (the more limited the decrease rate is, the closer to a flat rate your public spending would be).

eru 11mo ago

Yes, looking at the net transfers makes more sense. However, net transfers aren't a function of income alone. They depend on lots of factors, because they are plenty of benefits that depend on more than income and plenty of taxes like that, too. Eg capital gains taxes and property taxes and sales taxes and tariffs don't depend on your income.

zozbot234 11mo ago

Actually, optimal taxation models tend to show that a base transfer at zero income with an initially "high" marginal rate for clawing back the transfer at the lowest end (but still no higher than 100%, and falling very quickly as earnings increase!) works very well. (Marginal rates then rise progressively for higher incomes, and paradoxically become lower again at the very top end, trending towards zero at the extreme top-end of the scale. This is actually a consistent result in non-linear incomes taxation models; the very top earner should face zero marginal tax on the very last cent she earns!) The intuition is that you only "feel" the high marginal rate if you earn very little, which impacts very few people; but the effect of making the break-even point more manageable with lower marginal rates for most earners is felt throughout the incomes scale. What really screws up things is higher-than-100% marginal rates, which are regrettably common in real-world systems amd completely useless.

littlestymaar 11mo ago
I'd be curious to read more about that, because none of what you've written makes any sense to me right now. (Why would we want zero marginal tax on top earner who already get zero marginal utility for her money in the first place ?).
- zozbot234 11mo ago
  The zero marginal tax only strictly applies to the very last cent the extreme top-earner is expected to earn in the tax period. The idea is that at this theoretical extreme top-end tax bracket basically no one is paying infra-marginal taxes, hence the share of the incentive effect compared to the pure revenue effect is maximized. So you'll want to ensure that this extreme top-earner is only paying in lower, infra-marginal tax brackets, which have no incentive effect on her. This cannot be done literally because of randomness and uncertainty, but the broad effect of paradoxically lowering optimal marginal rates at the top end is nonetheless real.
  - littlestymaar 11mo ago
    It's only real if you assume top earners have monetary incentives to work more, which is a very bold assumption in a world where the top earners don't even earn money through their work in the first place. And again, the utility of income for an individual is logarithmic with regard to their income, which means the marginal utility is the inverse function and that never stopped the top earners to want more.