If you tax them, will they leave?
(theatlantic.com)114 points by JumpCrisscross 4 days ago
114 points by JumpCrisscross 4 days ago
Communism has never been tried at a large scale. Soviet Union didn't have it. China doesn't have it.
Just because someone has "communism" on paper doesn't mean the society actually functions according to the communist idea.
Social democracy has been tried in many places and it has produced things such as the Nordic Model and the Nordic states that have been very successful.
After the 2nd World War USA was very close to socialism. High wealth taxes, workers unions etc. As a result your average worker had a lot of purchasing power which of course fuels economic strength.
In fact many if the world's best performing companies are a kind of exercise in socialism since the RSU programs share ownership and results of the company to the workers (even if it's a small share)
Reminder when left to it's ways Capitalism reverts to company towns paying in scrip to make sure workers can't move away, so manipulating financial payout is very much within the Capitalist model and fair game in their ideology (only stopped by Government interference).
Capitalism's final form is a dystopian hellscape of rivers that can be lit on fire, unbreathable air, leaded gasoline, asbestos ceilings, company towns paying scrip, strike break private militias, opioid epidemics (wild this isn't a one time thing for Capitalism, but then the model for Capitalism seems to endpoint with getting people addicted to the product).
Everyone can agree pure Capitalism is a miserable failure that creates an unsafe environment and product landscape based on addictiveness. Time after time when left to their own choice, Capitalists chose making a worse world. The Capitalism model requires tight constraints from society to prevent Capitalists from creating an horrific, awful world like they have every time in the past when left unregulated.
The question is why do we make sure Capitalism can't destroy our rivers anymore, or pay workers in scrip (creating their end goal ideal of an inescapable labor system) but when they economically destroy the civil fabric with unequal wealth distribution we somehow refuse to step in? Capitalists long term will NEVER chose societal benefit, yet somehow we keep hoping they will and under regulating them. I remember when extremely liberal friends started getting their vested options and them excitedly talking about the whole loan model to not have to pay taxes, even though they 'supported' high taxes and knew the societal benefit.
In a healthy economy flow of money is like the flow of blood in the arteries. It is what stimulates the economic activity. You can't earn a dollar without someone spending that dollar. Spending = earning = economic activity.
People are always defending rich people (capital owners) that they invest their wealth. But actually if someone has a billion in the bank the fact that they have that billion is a proof that they didn't invest it. (If they did spend it or invest it the would not have it, now would they?)
A billion that circulates in the economy is much better than a billion that sits in someones bank account. Someone who spends 100% of their income is much better economic citizen than someone who doesn't.
Banks don't just keep your money in a vault when you store it in a bank account - that would be stupid both of both the bank and of you. Money looses value over time due to inflation, so banks reinvest 90% of your stored balance into loans, stocks, bonds, etc. This means that a theoretical 1B account, would allow someone else to take a 100M loan to fund a new venture. This is how banks make money, and they pay you a small portion of their profits as interest on your money (since they're profiting off it).
This is still not a good idea for you, as the interest doesn't make up for inflation. Most people keep a small portion of their wealth in the bank, as easy access for emergencies (this is called dry powder[0]). The rest is typically invested into private equity, which allows new ventures to be created.
It's very rare for anyone to have more than $50m in the bank. The money is usually out in the market doing it's work.
The point of the story really was that most rich people, those who don't work for a living but live off of capital assets are in a position of economic power where their wealth accumulates. When the real economy grows a few percent per year but the wealthy gain 10-20% every year their wealth comes at the expense of everyone else.
This is the trickle up economy where the few people at the top suction all the wealth to themselves. And the rate at which they acquire it exceeds the rate at which they spend it.
A billion in the bank is invested - that's how fractional-reserve banking works. And people that wealthy don't really just put their money "in the bank". They usually invest it in riskier things.
I would hesitate to call consumption "better" than investment.
There are literally two economies - the one most people live in, and the asset owning economy which deals exclusively in land, property, resources, and shares.
The health of an economy is defined by the permeability of the border between those two classes, and the direction of flow.
If the flow is mostly one way, you're getting wealth extraction, not investment.
But assets are not easy to move. So if you tax assets and not income, it doesn't matter where the owners are. It only matters where the assets are.
Sort of, with at least two caveats.
1) velocity of money matters, some spending creates more economic activity than others due to re-spending.
2) Investment is not the same as having your money sitting idle. Investment makes certain activities possible because of scale, payment made with the expectation of future value, financing capital goods or R&D, etc.
Short term: no
Long term: yes, especially if you combine really high taxes in the 40+% range with consistently rubbish public services
But the real question is not whether people will leave, the question is how many talented hard working people chose not to move to your country in the first place because your taxes were too high. It won't show up in any data, you'll just experience worse economic growth and have to tax everyone else more
The answer is just no. Massachusetts passed a tax on income over a million dollars and despite the ads that were obvious lies, we have more millionaires now than we did a few years ago. Turns out, rich people like to live in places that have well funded infrastructure, good schools, a thriving art scene, etc...
Yep people will pay rates in "high tax" US states where you're still only paying ~40% ish total income tax and they're really nice places to live.
That would still be considered a fair and reasonable level of tax by european standards.
Obviously there is a level though - if you made it 95% then people would leave. I don't think there's any reasonable argument that the level doesn't exist, the question is where is it for a specific place at a specific time
95% on what? Income over a million dollars. Income over 10 million dollars? If you like living in a super liberal state and super liberal city like Boston, you're not going to move to Texas just because you're getting taxed higher. Rich people are still absurdly rich, I feel like that gets lost in these discussions. These taxes don't materially effect them in anyway but have massive benefits for society.
Rich people tend to actually be penny pinchers in my experience and most will object to 95% income tax out of principle.
You could say "well good riddance" but taxing $10mn of income at 20% raises a lot more useful money than taxing $0 of income at 95%
To be brutal about it the question isn't a how many more millionaires. Say Massachusetts has 10 new millionaires. That's great. What if Florida has 1000 new millionaires? Suddenly 10 doesn't sound great.
To my mind it's a revenue maximizing question. Is Massachusetts hitting that metric right? I have no clue. I do suspect that the voters and the people advocating taxes like this in Massachusetts and California are not thinking in those terms. I think they are doing this out of some sense that anyone making that much has to be doing something unfair and that an inefficiency in revenue is just money spent towards fixing that unfairness.
It has dramatically increased revenue, more than expected. Also, if you're the type of person who thinks you shouldn't pay your fair share, feel free to move somewhere else. We have the best schools in the country. We have a strong social safety net. We have a high quality of life. Shit, we live longer than almost any other state. So please, if that's not your thing, take your money and leave immediately.
The correlation between higher state and local taxes (beyond some reasonable baseline) and improved public service is tenuous at best in much of the US.
I'm happy to concede Massachusetts may very well have found the right balance, but there's plenty of studies on this in aggregate.
There's unsurprisingly a modest but statistically significant migration of millionaires from high-tax to low-tax jurisdictions.
https://www.asanet.org/wp-content/uploads/attach/journals/ju...
Let's do a thought experiment and take it to the extreme: why not tax at the maximum?
We have already tried that in human history, it's called communism. No one is allowed to take private profit, everyone contributes to the best of their own ability, and everyone consumes according to their needs. It should be utopia because there is no wealth gap and wealth is maximally redistributed. Which is exactly what taxation is designed to do, only to the most extreme.
And I think everyone will agree with me that communism is a miserable failure. The rich may not leave physically but mentally they are checkout -- not willing to work as hard or take as much risk. So the answer is yes, if you tax them, most certainly they will leave physically for haven with lower tax, all things being equalled. Or leave mentally.
But not all things are equalled, so you can still tax them at a somewhat higher rate provided that you can provide other incentives. But still, too much tax will make it more likely for those who are able to to leave. This is almost an axiom.