How would you explain to a five-year-old that higher taxes on the rich don't fix everything?
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Matt Dotson, Fascinated by economics
392 votes by Adisa Nicholson, Erik Fair, Marc Bodnick, (more)
So say that your 5 year old can make money by doing things around the house.
$5 for making their bed
$5 for putting away their toys
$5 for putting their dirty clothes in the laundry room
$5 for going to bed on time
They can do any or all of these chores.
Dad is the government.
For the first $5 you earn, dad will take $1 and you keep $4. Dad will give this $1 to grandpa because grandpa used to do a lot of stuff around the house (social security). So if you do one chore, you get $4 and pay $1 in taxes.
For the second $5 you earn dad will take $2 more and you keep $3. Dad will use $1 to buy food for your baby sister (food stamps). And will give $1 to your brother who doesn't do any chores (welfare). If you do two chores you get $7 and pay $3 in taxes.
For the third $5 you earn, dad will take $3 more and you keep $2. Dad will use this money to buy a new crib for your baby sister (infrastructure spending). So, if you do three chores you get to keep $9 and pay $6 in taxes.
For the fourth $5 you earn, dad will take $4 more and you keep $1. Dad will use this money to buy some new locks for the doors (defense spending). So if you do 4 chores, you get to keep $10 and pay $10 in taxes.
You get to make the decision on how much money to make, and how to spend it. Let's say you're a rich person and will do 3-4 chores. Here are your options:
Raising taxes on the rich doesn't work as well as we think it will because rich people find ways to not pay the higher taxes.
Hopefully this example teaches about graduated tax rates (how we try to make rich people pay more), how rich people try to avoid paying taxes, and some of the ways the government spends the taxes it collects. Maybe it also teaches about democracy and why Government (Dad) can't make up bad rules or you'll vote for Mom. Maybe it also makes the 5 year old ask why his/her brother gets $1 for doing nothing.
$5 for making their bed
$5 for putting away their toys
$5 for putting their dirty clothes in the laundry room
$5 for going to bed on time
They can do any or all of these chores.
Dad is the government.
For the first $5 you earn, dad will take $1 and you keep $4. Dad will give this $1 to grandpa because grandpa used to do a lot of stuff around the house (social security). So if you do one chore, you get $4 and pay $1 in taxes.
For the second $5 you earn dad will take $2 more and you keep $3. Dad will use $1 to buy food for your baby sister (food stamps). And will give $1 to your brother who doesn't do any chores (welfare). If you do two chores you get $7 and pay $3 in taxes.
For the third $5 you earn, dad will take $3 more and you keep $2. Dad will use this money to buy a new crib for your baby sister (infrastructure spending). So, if you do three chores you get to keep $9 and pay $6 in taxes.
For the fourth $5 you earn, dad will take $4 more and you keep $1. Dad will use this money to buy some new locks for the doors (defense spending). So if you do 4 chores, you get to keep $10 and pay $10 in taxes.
You get to make the decision on how much money to make, and how to spend it. Let's say you're a rich person and will do 3-4 chores. Here are your options:
- You can decide that all this sounds fair and do all your chores for $10.
- You can do some of your chores because it's not worth going to bed on time for just $1.
- You can vote for Mom to be the Government at the next family meeting because she promises that if you do 4 chores you'll get to keep $12.
- You can give $1 to your aunt (who's an accountant) because she knows a special family rule about children who do all their chores. She says you'll get to keep $13, pay $6 in taxes, and give her $1.
- You can give $3 to your uncle (who's a lobbyist) because he can convince your Dad to not tax you for your 3rd and 4th chores. He says you'll get to keep $14, pay $3 in taxes, and give him $3.
Raising taxes on the rich doesn't work as well as we think it will because rich people find ways to not pay the higher taxes.
Hopefully this example teaches about graduated tax rates (how we try to make rich people pay more), how rich people try to avoid paying taxes, and some of the ways the government spends the taxes it collects. Maybe it also teaches about democracy and why Government (Dad) can't make up bad rules or you'll vote for Mom. Maybe it also makes the 5 year old ask why his/her brother gets $1 for doing nothing.
Wonderful post, but I think it's possibly limited by the fact that the only way your daughter makes money is through labour. (Doing chores.)Rich people make their money primarily through investment, and owning the means of production, no? Does that change anything?
I think one thing you're missing is why one would have a progressive income tax system.What's also missing (though out of scope, given the original question) is how higher taxes for the "rich" actually might make sense to an extent. If you set up the example with a whopping 80% tax rate for the highest income bracket, it's easy to focus only on the negatives.
Your analogy is flawed in so many ways.1. We don't have 60% or 80% tax brackets. The rich get to keep a majority of the money they make.
2. Most rich people don't make their money by doing chores or any sort of manual labor, where the money they earn is linearly correlated to the time and effort they expend.
3. Most people on welfare either can't find work or do work but don't make enough to cover their living expenses. In my county welfare recipients are required to work and search for full time employment while accepting benefits. If in this analogy you're the government, and you both pay your son and tax him, he's more like a government employee or a welfare recipient than a business tycoon.
4. AFAIK, your son doesn't have 9 other siblings who collectively make a fraction of what he does.
i think grandpa would've been in better position as a lobbyist :)
Is a job really the same as a chore? I'd argue many people, especially the very wealthy, enjoy their jobs. Ironically, jobs that are similar to chores are typically for the poor...
All in all it's fun analogy. I'm just not sure I want to have my kids think of their future job as a chore.
Interesting analogy. New door locks (defence spending) comes from the 75% marginal tax rate on the last $5 earned. Under option 2, that would be the first cut.Just like real life.
1) A 5 year old would be confused by the rules (maybe that's the point, but not sure the Q was implying this), 2) there is one earner in the game which doesn't help differentiate rich earners from poor ones. You don't need to explain all the separate social spending parts of gov't to explain why taxing the rich doesn't totally fix the economy (which I believe is meant by "everything").Alt Ex.: Pretend your school gives each kid $10 for each A they get on each of 10 tests they take. Now pretend 1 kid in your class gets all As and gets $100. You get 6 As = $60 and the bully gets 1 A = $10. Everyone has to pay for the teacher and the school building, so the top student pays $35 (35%) to the school, you pay $15 (25%) like the majority of your classmates and the bully pays $1.50 (15%)........this should already help the 5yr old understand the real world.
The school wants more kids to get As by hiring more and better teachers (and the students agree), so the school wants to take more money from the students. The easiest way is to take more from the top kid because you raise the most money from the smallest number of people w/ the most means to pay.
This is where you ask the 5 yr old: is this fair? and will the students get more As?
Then you explain the recession: now the top student was found to be cheating to get his As. Then you ask the 5 yr old: should the school take more from the top kid? Will this help stop cheating and/or help get more As?
It is clear that taking more from the top kid doesn't help fix the system 100%, but in the 2nd example it is clear that whether or not it helps fix the problem of getting more As, it seems fair. 1% of the economy earns 20% of the income and many of them or finance-related earners. When our financial system collapses, these folks should pay to incentivize a more sound system......well, at least that how I look at it.
This explanation overlooks the issue that there's a significant portion of payroll deductions that aren't graduated income tax at all (but would be in other countries.) So it's not like you get to keep $4 from the first $5. In reality, you get to keep maybe $3, $1 goes to the tax and $1 goes to funding your "entitlements" (call it the college fund.) As you earn more than a certain amount, the amount going to those entitlements caps out, so you start getting more of each incremental $5 depending on how fast the tax rate rises. We can say those aren't income tax, but for most people, they view what the government takes out of their paycheck (regardless of whether it's social security or income tax) as "taxes." And given that in other countries we compare tax rates to, those would generally be covered by income tax, it seems pretty fair to do so.
It seems to me that the analogy is incomplete without any representation of essential and non-essential costs, though maybe that's orthogonal to the intended lesson (if you have money, you can buy privilege). If each meal cost 25 cents, a trip to the park cost $2 and a new pony cost $30 with a weekly cost of $1, the system becomes more nuanced and realistic. Brother will starve without that $1. At the same time, he'll never be able to afford a trip to the park or a pony. Daughter can get that pony if she saves for it, and can only keep it as long as she does some extra work.
In the golden days of the US, the rich payed up to 90% in taxes. Even so, they were doing very well, and the country even better. And comparing a country to a family is a well known fallacy. In an economic sense, both have little to do with each other, although it might seem otherwise . You can put the familiy comparison to better use by just saying you don't let big older brother taking everything and leaving their weaker siblings with nothing...
Greatest Quora answer ever. Is there a Quora hall of fame?
First of all dont pay her to do what she should be doing as a part of the family. Cleaning her room is her part of what makes a family work. Allowance should be for the extras she does. If you want to teach her about taxes have her run a lemonade stand and let the neighbor come take her money at the end of the day. She will learn really quick.
Uh, can I explain to my kid what a faulty premise is? Like, the only people who think taxing the wealthy will 'solve all our problems' are living in Karl Rove's basement. It doesn't have to work perfectly to work.
And we DID have 90% tax rates for the wealthiest in Eisehower's day, and I don't recall rich people looking for John Galt's island. Takes a low tax rate on the wealthy to get them fascinated by those idiotic thoughts.
By Obama's definition, I'm rich. Yet, I don't have any secrets that allow me to pay fewer taxes. In fact, I fall into the Alternative Minimum Tax category every year. The idea that its okay to tax the rich because they find ways to not pay their fair share is flawed.From The American:
"The wealthiest 1 percent of the population earn 19 percent of the income but pay 37 percent of the income tax. The top 10 percent pay 68 percent of the tab. Meanwhile, the bottom 50 percent—those below the median income level—now earn 13 percent of the income but pay just 3 percent of the taxes."
Can I vote twice on this ? :)
I think you might also tell the 5-year-old that you plan to take all his money to pay off your mortgage. When he protests that everything he owns won't cover that, you can reply "Doh!".
You need to exand your model so that brother plays football after school, for which he earns an allowance of $104,000 per game. That puts him in the top tax bracket of $4.
What about taxing the super wealthy? This example hides the fact that after a certain wage level, people respond to incentives very differently. Warren Buffet for instance seems to be lobbying FOR higher taxes.
Loved reading that! I'm laughing even though its not funny!
I think it's cute. It's a 5yo.. Not a thesis.. Sheesh!
One of the best analogies I've read. Would have given it a 10/10 if you didn't put your political agenda in it. That doesn't support your argument though. Let's say the family is really broke and the baby sister is sick, the boy has 2 options, one to put out more since he has enough money, or just be selfish and keep as much as possible to himself and let the family fall apart, thus his whole earning system collapses. Again, this doesn't prove anything because we are oversimplifying a very complicate issue. Still my favorite analogy though.
John David Ward, economics buff
57 votes by Jessica Donahoe Shipman, Gabriel Seah, Kerry Champion, (more)
I can think of half a dozen different ways to put it, but the best is probably the one my dad told me when I was five years old.
My dad, who was a Goldwater Republican and one of the smartest people I've ever met, used the analogy of a careless fire brigade carrying buckets of water up and down hills for miles. As each one passes the bucket to the next, some of the water is spilled on the ground.
You might think that because so many people are involved that each one is watching the other and ensuring they don't waste any water. But it's precisely because there are so many hands involved that, though each one spills only a small amount, it adds up to a massive loss.
No one person is responsible for the lost water, because each one can rightfully claim that he spilled only a little bit. In the end, the final person in the chain gets a tiny splash of water, but it removes a full bucket of water from the source.
You can use the bucket brigade to move water from one place to another, but unlike the natural water cycle (supply and demand), short temporary bucket brigades created in response to disasters (spontaneous charity), well-designed aqueducts (churches, nonprofits, and other permanent charitable institutions), it's a very inefficient process.
(When I was little, I was irritated that this analogy seemed so simple. I thought it couldn't be true, because if it was, people would be too smart to fall for it. When I got older, I gradually realized my dad was right about this, as he was about so many other things. But to this day, I still remember this analogy. I wish I knew if it was original to him or something he read somewhere.)
Knowing what I do now, I would extend this by saying that the economy is like a pool of water. It's all connected. Whether you draw water out at the shallow end or the deep end, the shallow end (the poor) will still go dry first.
My dad, who was a Goldwater Republican and one of the smartest people I've ever met, used the analogy of a careless fire brigade carrying buckets of water up and down hills for miles. As each one passes the bucket to the next, some of the water is spilled on the ground.
You might think that because so many people are involved that each one is watching the other and ensuring they don't waste any water. But it's precisely because there are so many hands involved that, though each one spills only a small amount, it adds up to a massive loss.
No one person is responsible for the lost water, because each one can rightfully claim that he spilled only a little bit. In the end, the final person in the chain gets a tiny splash of water, but it removes a full bucket of water from the source.
You can use the bucket brigade to move water from one place to another, but unlike the natural water cycle (supply and demand), short temporary bucket brigades created in response to disasters (spontaneous charity), well-designed aqueducts (churches, nonprofits, and other permanent charitable institutions), it's a very inefficient process.
(When I was little, I was irritated that this analogy seemed so simple. I thought it couldn't be true, because if it was, people would be too smart to fall for it. When I got older, I gradually realized my dad was right about this, as he was about so many other things. But to this day, I still remember this analogy. I wish I knew if it was original to him or something he read somewhere.)
Knowing what I do now, I would extend this by saying that the economy is like a pool of water. It's all connected. Whether you draw water out at the shallow end or the deep end, the shallow end (the poor) will still go dry first.
Wow. That blew my mind.
Nice analogy. Doesn't really answer the question. The bit at the end was entertaining though.
This is probably one of the very few answers here that isn't specious.
This answer totally didn't go where I expect it to go. When I was reading, I thought the spillage over a wide area was a good thing.A positive by-products of trying to solve a big problem (the fire), we end up watering a lot of ground and making it fertile, thereby solving lots of little problems too.
This is the sentiment implied in the saying: "A rising tide floats all boats." It's also why when trying to preserve an ecosystem, there are certain species that function well as poster children, such as chimpanzees and polar bears.
there are so many macro examples of comparing our economy with but the thing is at how much micro level are we thinking about it and taking actions. Actions can't be taken on a macro level examples like yours. Keeping your idea in mind one has to analyse the whole micro factors then only he can take action.I can give you so many idea like yours and you will find them more realistic but the point is they cant be implemented without the micro analysis.
Craig DiPaolo, Copywriter, Editor, Reader
62 votes by Joe Samson, Rupert Baines, Brian Karfunkel, (more)
Eric Dahms, An American in London.
42 votes by Adisa Nicholson, Bryan Doucey, Tim Lamb, (more)
My response is: who actually believes it would fix everything?
The two extreme ends are both wrong: you can't just tax the rich and solve fiscal problems, particularly if we're sending water buckets up a hill and losing water each hand (as above). One the other side, you can't just massively cut government spending and social programs and expect that reduced expenses in those areas won't have dramatic negative external effects. It may reduce spending to within the current tax revenues, but then you have a massive - and massively growing - population of citizens which rely on social programs that become even more destitute. With increased desperation comes increased crime - crime for survival - so the cost of not taxing the rich is passed on to the society.
I know this isn't really a direct answer to the question, but I think it's incredibly important that this "compromise" subject is included in any answer. Both sides must sacrifice, find middle ground. That's the key to any human relationship and that fact doesn't just disappear because politicians want to stand on their soap boxes all day.
The two extreme ends are both wrong: you can't just tax the rich and solve fiscal problems, particularly if we're sending water buckets up a hill and losing water each hand (as above). One the other side, you can't just massively cut government spending and social programs and expect that reduced expenses in those areas won't have dramatic negative external effects. It may reduce spending to within the current tax revenues, but then you have a massive - and massively growing - population of citizens which rely on social programs that become even more destitute. With increased desperation comes increased crime - crime for survival - so the cost of not taxing the rich is passed on to the society.
I know this isn't really a direct answer to the question, but I think it's incredibly important that this "compromise" subject is included in any answer. Both sides must sacrifice, find middle ground. That's the key to any human relationship and that fact doesn't just disappear because politicians want to stand on their soap boxes all day.
Which is why there should have never been the social programs - at least not to the extent that they are now.
Why not just study other federated economies with income taxes as models?
excellent point. Either political parties vision alone would be a disaster if realized. democrats and republicans are both pistons driving the same engine.
Couldn't have said it better myself
Simon Crump, software entrepreneur, economist, lib...
31 votes by Jack Mardack, Michael Howard, Jessica Donahoe Shipman, (more)
In terms a five year old might understand, one big reason is that the wealthy will simply go elsewhere. If I can choose to work in the UK and pay 50% tax on my earnings or do the same job in Hong Kong or Singapore and pay just 15%, that's going to be a big factor in where I choose to work. If I leave the country because they hike my tax rate, the government will earn less money because I was paying lots of tax before and now I will pay them nothing. As the very richest people are some of the most mobile and can often conduct their business from anywhere in the world, it won't take many of them to leave to wipe out the gain from the people who stayed. Conversely, if the government reduces the top rate of tax, it might encourage more rich people to come and live in our country and tax receipts could actually go up.
But it isn't just the tax revenue that is the issue. Having wealthy people live in your country is good because they will spend and invest more there. They are spending money in your shops, buying cars and houses. And most important they will probably be employing staff, creating jobs and setting up businesses. All this economic activity will be lost if you chase them off.
Underlying all of this, the most important concept to get across is that there is not a fixed amount of wealth in the world to be shared around. Wealth is created by those who innovate and work smart and it is destroyed by those who consume without contributing. If you keep taking the rewards from those who create wealth then sooner or later it won't be worth their while and everybody loses.
But it isn't just the tax revenue that is the issue. Having wealthy people live in your country is good because they will spend and invest more there. They are spending money in your shops, buying cars and houses. And most important they will probably be employing staff, creating jobs and setting up businesses. All this economic activity will be lost if you chase them off.
Underlying all of this, the most important concept to get across is that there is not a fixed amount of wealth in the world to be shared around. Wealth is created by those who innovate and work smart and it is destroyed by those who consume without contributing. If you keep taking the rewards from those who create wealth then sooner or later it won't be worth their while and everybody loses.
The majority of the rich don't move to other countries because of taxes.
Except that if you leave the USA, you are still required to file and pay the difference in US taxes to the USA, unless you renounce your citizenship, in which case all your assets are taxed at the time of exit which is a significant burden presuming you have a lot of accumulated wealth.Of course, "Corporations" are not citizens (though they are people reside in America ... isn't that illegal without a VISA?); thus a corporation can move with fewer consequences. That is a major part of the problem, of course.
Weathy people do not consume enough to justify a lower tax rate. How many cars can one person buy?
Someone who has 1000x as much wealth as me does not by 1000x as many cars, or 1000x as many shirts, or take 1000x as many vacations costing 1000x as much...The relationship between wealth and consumption is not linear. Pretending it is? That's either intellectually dishonest or genuinely uninformed.
By this logic nobody would stay in a five star hotel, but rather go to a less expensive, lower quality hotel to save money. The US is an attractive place to live for many reasons, so tax rates is likely not the determining factor in where one lives.
Krzysztof Kowalczyk, Maker of software.
47 votes by Tom Hughes, Adisa Nicholson, Tom Anderson, (more)
A better question would be: how do you explain to grown ups how to not fall for trolls and answer "questions" with clear agenda.
If you can't, then please answer a few more questions, like: explain to 5 year olds why beating a wife creates a more harmonious marriage.Suggestions Pending
If you can't, then please answer a few more questions, like: explain to 5 year olds why beating a wife creates a more harmonious marriage.Suggestions Pending
Dan Shafer
11 votes by Adisa Nicholson, Jack Mardack, Jack Lerner, (more)
Taxing the rich won't fix every problem but it will fix -- or help fix -- a LOT of problems. Taxing the poor won't fix ANY problem, but it will CREATE a lot. The graduated income tax has worked for a long time in this country, only breaking in the past couple of decades when the graduation sloped off and the race toward income inequality gained real momentum. Now we have a race to the top and a race to the bottom and a disappearing middle. An absolutely guaranteed recipe for economic disaster.
Nice try, Ms. Budko. This debate isn't between tax rates for poor people and those for almost-as-poor members of the GOP-assassinated Middle Class. It's about taxing the very rich, the very privileged who don't work for their money and in most cases never have. They were born to it. If they are "self-made" (don't get me started), they have long since stopped working for their money and have their money working for them.
They incur thereby a larger obligation to help others. In this country we used to take it for granted that the wealthy would participate in public service, become philanthropists and pay their fair share.
We've lost those principles and our country is on the brink of disaster as a result.
Those who work harder to get better education and / or work longer hours earn more money than high school drop outs or part time check out clerks.Taxing those higher earnings at punitive rate creates a negative feedback loop - disincentifies check out clerks from going to college, making something of themselves, contributing to society and earning a decent living.
do you think progressive tax system is bad? ... and do you know why it was the way it is? ... you will create Robin Hoods if rich people do not give more on tax ... crime rates will increase if proper social justice is not done ... poor is not by choice ... I'm not supporting the poor just blindly ... since they don't the means to educate themself government need to take a steps to educate them ... yes, some need to pay more and some need to pay less in order to make a balance ... without compromise you cannot win anything ... for rich paying more is not going to hurt them much, but for poor it is going to hurt more ... rich needs to be not greedy but generous ... for rich it is like giving some donation to government for providing security for their wealth ...
Balaji Viswanathan, Founder, Zingfin.com
17 votes by Sebastian Hallum Clarke, Adisa Nicholson, Sanjay Kumar, (more)
Mom gives 5 dollars every day, for those kids who prepare their beds. The kids faithfully prepare the beds as they have lots of uses for 5 bucks. Things go well on day 1.
The next day, dad walks in and says he has to be paid a commission on the rewards as he thinks $5 is too much for just preparing the bed. He takes away $1 from each kid. Eldest kid John says he can't use the $4, as just an entry to the skating rink costs $5. He thinks, for the 30 minutes spent on preparing the bed, he can work somewhere else and make more than $4. So, he quits making his bed.
Dad then increases the tax to $2 on day 3. Now the next kid, Jane, also quits, as she can't do with just $3 for buying her favorite songs on iTunes.
The process goes on, until dad taxes all $5 and none of the kids make their beds anymore.
Motivation is inversely proportional to taxation.
The next day, dad walks in and says he has to be paid a commission on the rewards as he thinks $5 is too much for just preparing the bed. He takes away $1 from each kid. Eldest kid John says he can't use the $4, as just an entry to the skating rink costs $5. He thinks, for the 30 minutes spent on preparing the bed, he can work somewhere else and make more than $4. So, he quits making his bed.
Dad then increases the tax to $2 on day 3. Now the next kid, Jane, also quits, as she can't do with just $3 for buying her favorite songs on iTunes.
The process goes on, until dad taxes all $5 and none of the kids make their beds anymore.
Motivation is inversely proportional to taxation.
This is a pretty specious answer.
Hi Johny, why do you think it is specious?
For one thing, the kids in this scenario aren't rich, so it already doesn't apply to the question. Secondly, the government isn't going to tax anyone at a 100% rate.
Third, the rich aren't going to quit their jobs if their taxes are raised. Even Bill O'Reilly who threatened to quit over Obama raising taxes said this when Jon Stewart asked him what percentage of that threat was empty, "All of it." Seriously, the rich aren't going to just up and quit
Fourth, taxes are going to be the same unless a person moves to another country, and most (almost all?) rich people don't move countries just because of taxes. If that were the case, there would be not a single rich person in the heavily taxed European countries. Switching jobs isn't going to lower your taxes, so reality is different than the situation you present.
Fifth, I absolutely disagree with your last statement. If anything, motivation to to find loopholes in the tax code increases, but motivation to work doesn't decrease. Do you seriously know anyone who goes, if my taxes go up, I'm going to work less?
There's more, but I think my response is long enough for now.
Johny, it doesn't matter if the kids are rich or poor. If their incentives ($5 for making the bed) become less than the alternatives, then they will stop doing the work. It is a curve and you need 100% taxation for everything to stop.Why can't the big guys move? Some biggies already take citizenships in tax havens. If sh*t hits the fan, some of them could take citizenship in the Caymans and visit their US businesses on a visa.
Already, some of America's iconic companies such as Apple leave billions outside the country, since bringing them to the US would force them to pay high tax.
Now, think about it. If US had low rates, Apple and Microsoft would bring back billions of dollars to the US and could use that further expansion of facilities.
Europe is a wrong example to follow when it comes to taxation. They once ruled the world. After they become welfare states, they are only cared when their economies start affecting bond-markets.
1. That curve grossly skewed towards the 100% taxation side. There's a lot of room between current tax rates and 100%. As I said before, the rich aren't going to stop working because their taxes are raised (some unobscene amount). 2. Lol, good luck renouncing your US citizenship. They will make it extremely difficult if they determine it's because of taxes. If you do leave, you'll have to pay an exit tax anyways. Oh and if you do renounce your citizenship for tax reasons, you're banned from re-entering the country. That's the Reed Amendment. Good luck getting a visa. But due to a lack of foresight, that amendment isn't really useful, it's being replaced by the Ex-PATRIOT Act which will do the same thing, but with mechanisms for enforcement. I also didn't say they can't move, but that most of them don't.
3. What does this have to do with anything? This doesn't relate to your answer or the question.
4. Also, what does this have to do with anything? This also doesn't relate to the answer or the question.
5. And you bring that up because...? How does that change the fact that the rich of those countries don't abandon it? There's plenty of places to go, but you don't see a giant exodus of rich people.
3 & 4 was about high taxes on corporations. So, why is not relevant.
It's not related to your answer because it's not about motivation decreasing with taxation. Apple and Microsoft aren't going to stopping work because of taxes.It's not related to the question because it doesn't answer the question of how higher taxes on the rich doesn't fix things. So they don't bring money back because of high taxes. So what? The Heritage Foundation, a *conservative* think tank, argues that even if we gave a tax holiday so they could bring that money back, it wouldn't spur investment or jobs growth. Re: http://blogs.wsj.com/econ
So I ask you, what point are you trying to make by bring that up?
The motivation doesn't always mean stop working. It also means find ways to subvert the rules. The question was why high taxation would not work. The point about Apple is how corporations can successfully defeat high tax regimes by simply not bringing the money home. The rich can do similar stuff. Most of the rich didn't get rich by being dumb. When someone is pulling a fast one on them, you bet they are smart enough to find the loopholes. A bureaucrat & lawmaker who is earning $150K and making rules is sometimes no match for the smart guy making millions.
Smart brains can both be productive and be cunning. In a conducive environment, they add value to the economy. If the system goes against them, the mind starts tending towards cunning. They will find every possible hole in the system to get their money out or hidden.
I agree the rich will try to subvert the intentions of the system given higher taxes. However, that is not what your original answer stated or even implied. Nothing in your original answer was about subversion or cunning. Just quitting or switching jobs because motivation is inversely related to taxation.I also doubt smart people would stop being cunning in the case where the system works for them. If people have means to obtain an advantage, they're going to exploit it.
Can you point me to some form of literature showing that taxation is inversely proportional motivation? I can't imagine Warren Buffet or Zuckerberg or almost any billionaire not working or simply quitting or moving out of the US in case taxes were increased. Plus, the example is way over exaggerated. A 100% tax rate is not plausible, even in an ultra-progressive liberal's fantasy world.
I never said works stops only at 100% tax rates. At each increase in tax rate, productivity drops. It is a derivative of the Laffer's curve.http://en.wikipedia.org/w
Thanks for the reference. What about the political power of the wealthy?Since the wealthy have so much political handle in these situations, how much productivity is being risked with a progressive taxation policy? If I was a CEO of a multinational corporation, progressive taxation would be only one of the issues I might lobby against, but it wouldn't decrease my work productivity since my politically muscular arm is likely already compensating for this problem.
Excuse me of my ignorance in these issues, my knowledge is limited in these matters, but I actually do believe progressive taxation is beneficial for the overall health of a society, and I am willing to be convinced otherwise in the face of evidence against it. Thank you.
it depends from what use of those $ the gov does. I agree with Balaji.
Probably, but the relationship is likely not linear. Plus, nobody makes a billion dollars through labor compensation. Rather, it's more likely through capital gains, and it's likely they would continue to apply capital regardless of whether they get 80% of those gains or 60%.
John Cowan
5 votes by Adisa Nicholson, Ben Mordecai, Benjamin Gustafsson, (more)
A more fundamental answer:
When people earn money, taking part of it from them is not a good way to get money for what everyone needs, like public safety and clean water. Instead, people should pay more if they use more natural resources, such as land (not counting the houses or buildings on it), water or oil in the ground, trees that grow by themselves, air and moving water that gets polluted by what they are doing with it, fish in lakes and oceans, and so on.
These are things that people don't make for themselves, so it is fair to charge people for using them. They are very hard to hide and so it's possible to find out exactly how much people use. In particular, the land under buildings in big cities is so valuable that taking just part of what people are willing to pay to use that land is enough to take care of all the needs of society all by itself. If any money is left, it can be given back to everyone.
Short version: "Tax bads (waste and privilege), not goods (income and capital gains)."
When people earn money, taking part of it from them is not a good way to get money for what everyone needs, like public safety and clean water. Instead, people should pay more if they use more natural resources, such as land (not counting the houses or buildings on it), water or oil in the ground, trees that grow by themselves, air and moving water that gets polluted by what they are doing with it, fish in lakes and oceans, and so on.
These are things that people don't make for themselves, so it is fair to charge people for using them. They are very hard to hide and so it's possible to find out exactly how much people use. In particular, the land under buildings in big cities is so valuable that taking just part of what people are willing to pay to use that land is enough to take care of all the needs of society all by itself. If any money is left, it can be given back to everyone.
Short version: "Tax bads (waste and privilege), not goods (income and capital gains)."
Sanjiv Shresta
3 votes by Terry Gauchat, Elizabeth Goodman, and Susan Sim
No one thing will ever fix everything. Explain to the five year old that every action has unintended consequences, often involving adaptive behavior which confounds the original purpose.
An example a five year old might understand is that if he doesn't share his toys when he is playing with other kids, then they won't want to be his friend. As a result fewer freinds will come to his birthday party and he will get fewer presents.
An example a five year old might understand is that if he doesn't share his toys when he is playing with other kids, then they won't want to be his friend. As a result fewer freinds will come to his birthday party and he will get fewer presents.
Ben Mordecai, Have a bun in the oven
7 votes by Adisa Nicholson, Simon Crump, Zalman Friedman, (more)
In some cases rich people make a lot of money unfairly by taking advantage of people and that is wrong. We need to do our best to tell the government ways we can make things more fair.
But sometimes rich people make money by having a really good idea, taking a chance, and working really hard. When that happens, everyone is better off: the rich person because he earned a lot of money and the other people because they got new stuff that they had been wanting.
If taxes go up and up and up for the rich it means that some of their cool ideas would be too expensive to try. That means that the rich person doesn't get a chance to make more money, the normal people don't get cool new stuff and the government misses out of the taxes they would have charged if the rich person was able to afford to try his good idea.
But sometimes rich people make money by having a really good idea, taking a chance, and working really hard. When that happens, everyone is better off: the rich person because he earned a lot of money and the other people because they got new stuff that they had been wanting.
If taxes go up and up and up for the rich it means that some of their cool ideas would be too expensive to try. That means that the rich person doesn't get a chance to make more money, the normal people don't get cool new stuff and the government misses out of the taxes they would have charged if the rich person was able to afford to try his good idea.
Luke Caldwell
4 votes by Adisa Nicholson, Tony DeFilipps, Robert Connor, and Anon User
The obvious issue that is being skirted here is that rich people don't actually pay all their mandated taxes. Loopholes mean they don't have to. If they did, there would be less of an issue with some of the problems that make them rich, such as investing in companies that make money from entities such as wars, foreign aid and such.
Wars?
Poor people don't normally invest in companies that make weapons or who manage logistics of carrying on a modern war.
Poor people don't often invest in Agri-businesses that make money by charging Governments and NGO's spot prices (well above the actual bushel prices) on wheat, rice and other foodstuffs that are sent to fulfil foreign aid orders. Those same Agribusinesses also receive the lions share of Government Farm Subsidies, not small-hold Farmers, which inherently means a double share of Government Aid to Corporations.
The simple issue is that it is not ineffective Government, it is effective Lobbying that keeps ensures Reps and Senators will keep feeding big business, keep open the loop holes that make it possible to not pay the appropriate taxes that are mandated. Here's an industry specific tax break, Hedge Fund income isn't taxable because that income is Capital gains, and that is same as the income when a family home is sold at a gain ... well, am I the only one who can see the inequity of the situation? The Rich don't buy more refrigerators and couches and jeans and music and groceries than the poor. Yet they pay a smaller percentage of a much larger income than their servants and workers and still use Government funded infrastructure to the same extent.
Where is the equality in that simple equation?
Wars?
Poor people don't normally invest in companies that make weapons or who manage logistics of carrying on a modern war.
Poor people don't often invest in Agri-businesses that make money by charging Governments and NGO's spot prices (well above the actual bushel prices) on wheat, rice and other foodstuffs that are sent to fulfil foreign aid orders. Those same Agribusinesses also receive the lions share of Government Farm Subsidies, not small-hold Farmers, which inherently means a double share of Government Aid to Corporations.
The simple issue is that it is not ineffective Government, it is effective Lobbying that keeps ensures Reps and Senators will keep feeding big business, keep open the loop holes that make it possible to not pay the appropriate taxes that are mandated. Here's an industry specific tax break, Hedge Fund income isn't taxable because that income is Capital gains, and that is same as the income when a family home is sold at a gain ... well, am I the only one who can see the inequity of the situation? The Rich don't buy more refrigerators and couches and jeans and music and groceries than the poor. Yet they pay a smaller percentage of a much larger income than their servants and workers and still use Government funded infrastructure to the same extent.
Where is the equality in that simple equation?
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