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The extra benefit you get from a given increase in income decreases as your income increases. (If someone's on $20k/year then a raise of $5k/year is probably qu

by gjm11 18y ago

The extra benefit you get from a given increase in income decreases as your income increases. (If someone's on $20k/year then a raise of $5k/year is probably quite a big deal. If they're on $500k/year, not so much.) Therefore, the cost of a given amount of taxation is typically less to someone rich than to someone poor. On the other hand, the benefit of the taxation -- whatever hopefully-useful things the government does with the money -- is independent of whether it came from rich people or poor people. Therefore: whatever amount of taxation revenue you want to raise, and ignoring second-order effects (e.g., that higher tax rates reduce the incentive to work and increase the incentive to find ways to avoid/evade taxes) you will reduce the amount of harm done by collecting the taxes if you take more from the better-off and less from the worse-off. Of course, once the differences between rates become very large, those "second-order" effects may no longer be small. If you ignore them entirely, I think the conclusion is that for maximum total utility you should tax + redistribute until everyone is equally well off, but long before you get there the "second-order" effects will be much more important.

dkokelley 18y ago
I understand your point about the diminishing marginal utility of extra dollars for the rich, but it seems dangerous to make that judgment for them. Who is to say how much the extra $5,000 is worth to me? What if I make $500k/yr, but I've budgeted most of it to regular expenses, some savings, and the rest in investments, and my daughter is now engaged and will have a wedding in 3 months? Now I receive a $20k bonus from my company to help pay for my daughter's wedding. Unfortunately for me I can only spend about $12k of it for wedding expenses, because someone else (society, taxpayers, politicians) has decided that those extra dollars aren't as useful to me than someone else (the government decides who). My point is not that it's possible for someone who makes a lot of money to not have it readily available, but rather that the road we head down when we say "The socially responsible thing to do is tax people who earn more because they can deal with it" is a scary one. Also, tax + redistribute until everyone is equal will never happen, even if there are no second-order effects, simply because people are different. Some are content to work x amount for $y, while others want to innovate, work harder, and do more. The government should make the game equal, not the players.
- gjm11 18y ago
  No matter what tax policy the government has, some people will do particularly badly and others particularly well. (It is obviously not feasible to investigate every single taxpayer's financial situation.) Of course it will sometimes happen that someone with a large salary is badly hurt by paying $X extra taxes. It will also sometimes happen that someone with a smaller salary is badly hurt by paying $X extra taxes. And the point is that the latter will happen much more often than the former. Taxing the rich (for whatever definition of "rich") more doesn't mean believing that all rich people can easily afford to pay the extra, any more than not taxing the rich more means believing that all not-rich people can easily afford to pay the higher taxes they'll have to pay if the rich aren't taxed more. It just means believing that overall the population is better off that way. (And yes, of course, tax+redistribute until equality is never actually going to happen, and a good thing too.)
  - dkokelley 18y ago
    Of course we're not looking at the other side of the coin: Government spending. The only reason we need to raise taxes is because they either spent too much and now need to pay it, or want to spend more and need the money to do it. But this is an entirely different discussion.

by gjm11 18y ago

dkokelley 18y ago

I understand your point about the diminishing marginal utility of extra dollars for the rich, but it seems dangerous to make that judgment for them. Who is to say how much the extra $5,000 is worth to me? What if I make $500k/yr, but I've budgeted most of it to regular expenses, some savings, and the rest in investments, and my daughter is now engaged and will have a wedding in 3 months? Now I receive a $20k bonus from my company to help pay for my daughter's wedding. Unfortunately for me I can only spend about $12k of it for wedding expenses, because someone else (society, taxpayers, politicians) has decided that those extra dollars aren't as useful to me than someone else (the government decides who). My point is not that it's possible for someone who makes a lot of money to not have it readily available, but rather that the road we head down when we say "The socially responsible thing to do is tax people who earn more because they can deal with it" is a scary one. Also, tax + redistribute until everyone is equal will never happen, even if there are no second-order effects, simply because people are different. Some are content to work x amount for $y, while others want to innovate, work harder, and do more. The government should make the game equal, not the players.

gjm11 18y ago
No matter what tax policy the government has, some people will do particularly badly and others particularly well. (It is obviously not feasible to investigate every single taxpayer's financial situation.) Of course it will sometimes happen that someone with a large salary is badly hurt by paying $X extra taxes. It will also sometimes happen that someone with a smaller salary is badly hurt by paying $X extra taxes. And the point is that the latter will happen much more often than the former. Taxing the rich (for whatever definition of "rich") more doesn't mean believing that all rich people can easily afford to pay the extra, any more than not taxing the rich more means believing that all not-rich people can easily afford to pay the higher taxes they'll have to pay if the rich aren't taxed more. It just means believing that overall the population is better off that way. (And yes, of course, tax+redistribute until equality is never actually going to happen, and a good thing too.)
- dkokelley 18y ago
  Of course we're not looking at the other side of the coin: Government spending. The only reason we need to raise taxes is because they either spent too much and now need to pay it, or want to spend more and need the money to do it. But this is an entirely different discussion.