I agree it’s a terrible strategy on average, but Money has diminishing marginal utility. Having 1/10th as much money is far worse than having 10x as much is better.
As such once people can lock in a reasonable retirement they often get really conservative.
This is why high progressive tax rates, let alone high marginal tax rates, are justifiable. The less you earn, the lower a percentage of your earnings you can afford to lose before having to make drastic lifestyle changes. However, relatively low on the absolute income range for Western countries, you reach a point where you could lose 90% of your income, live in a high-cost-of-living area, and still experience negligible change in your circumstances. Tax rates should be based on analyzing where that point is.
I find earned income tax is never justifiable. Working should never cost you money. Marginal land value tax rates do make sense though (and marginal sales tax rates, but that’s harder to implement).
The current situation of low land value tax rates and high earned income tax rates leads to two old people living in excessively large lots while two young working people give up goals of having kids because they don’t want to raise them in a 1,000 square foot rental they don’t consider stable enough.
If I had a nickel for every time a recruitment process was jeopardized by my asking for the company to cover travel expenses to the interview, I would have two nickels. Which isn't a lot, but it's weird that it happened twice.
And that’s the case as long as the income tax is at or less than 100%. Income taxes could well be collected from employers directly and never reach you (like some European countries do for roughly 50% taxes due). Ultimately what counts is how much your employment costs. Psychologically, it then may not feel like you are paying anything, because you don’t. You working supports public infrastructure for public benefit (which includes you again). Prefer to pay no taxes but having to build your own roads? Good luck with that.
> And that’s the case as long as the income tax is at or less than 100%.
No, its true as long as taxes on income plus the necessary-but-non-deductible expenses associated with maintaining the job that would not be required otherwise are less than the pay for doing the job.
But income taxes aren't the only taxes on income (payroll taxes exist), and costs of work (added wardrobe costs imposed by dress codes and expectations, commute costs, added childcare costs) are real.
Functioning governments drastically increase worker productivity through several means such as enforcing the rule of law, sanitation, infrastructure etc. This is also why people want to immigrate to countries with such high tax rates and more specifically income tax rates.
Thus as the value of wages and investment returns is a direct result of government actions just as the value of land is a direct result of government enforcement of property rights, it’s got equal legitimacy for taxing both.
To be clear, I agree the costs of work caps maximum tax rates well below 100%.
However, I was dumping government into that same cost of work category as commuting costs. It just makes more sense to work in a country where you make 100x as much even if you’re paying 50% in taxes than a failed state with zero income taxes. As such it also makes sense for governments to impose income taxes to be able to pay for things like education that improve short or long term productivity.
> As such it also makes sense for governments to impose income taxes to be able to pay for things like education that improve short or long term productivity.
Why can’t land value tax be used? It already is in the USA (and probably around the world), but the labs value tax rates can be increased to properly allocate tax liability to this who consume more.
Tax homes based on the number of rooms and people suffer without closets even though total revenue remains the same. Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.
The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system, but just as with closets people end up with lower standards of living because they’re optimizing around arbitrary rules.
> Tax homes based on the number of rooms and people suffer without closets even though total revenue remains the same
How is this relevant to land value tax?
> Income taxes have this wonderful property where factory workers can’t game the system thus avoiding distortions. Land taxes high enough to offset income taxes results in all sorts of unpleasant side effects.
Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects? All taxes affect the market, and they are supposed to.
Isn’t it unpleasant that people in large lots who inherited from their ancestors’ pay very little tax for all the security an orderly society provides and all the courts/police/military that keeps their land safe?
Isn’t it unpleasant that too low land value tax rates keep empty store fronts, empty lots in the middle of urban areas, increasing the lengths people have to travel and removing the ability to walk anywhere?
> The US approach of funding local schools is horribly inefficient. People like it because it reinforces the class system,
Only because it’s a flat tax rates. If it was a power law formula, then people using less land (aka those in apartments and in general, far poorer) would pay far less than those on 0.06 acre lot townhomes who would pay less than those on 0.15 acre lot mansions. Not to mention all the rich landowners (via REITs and other real estate holding companies) paying far more for commercial real estate, incentivizing them to make productive use of their land, such as dense housing and not keeping spaces empty.
> Why would earned income taxes not have unpleasant side effects if land value taxes have unpleasant side effects?
Distortion requires some way to optimize for the tax by charging behavior unnaturally. Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.
A land value tax incentivizes less efficient allocation of resources on the other hand because land becomes artificially more expensive. For example it heavily disincentivizes farming etc. Obviously you’d end up with same kind of tax breaks but now you’re further distorting the market.
Land value tax rates can vary within and without metro areas.
It already does, and no one is going to farm a few acres in the middle of a metro or suburb. They will hoard the land and keep it empty or underutilize it with low density housing/business to serve as a piggy bank they can 1031 exchange.
And again, the big distortion is old and wealthy people disproportionately benefiting from an orderly and secure society, while paying the least, while young people who work pay the most. See Additional Medicare Tax for another example.
> Maximizing income results in the same behavior with and without an income tax. Instead distortion comes modifications like not taxing health insurance and lower rates on long term capital gains etc.
I disagree from a society wide perspective, levying a higher tax burden on rent seekers is beneficial. Rent seeking needs to be disincentivized, and using earned income tax to keep rent seeking taxes low (such as land value and estate and cap gains taxes) is overall a negative for the future of society.
When you look land value tax and start thinking ahh but this impact needs to be mitigated that’s a sign there’s an inherent problem with the approach. There’s an endless list of things people would tweak if it was high enough replace income taxes the flawed system that resulted would still just be less efficient overall.
Just by comparison people don’t single out professions and say lawyers should have higher rates than doctors. You’re not tempted to try and manipulate the economy through central planning as we would be with land value taxes.
You claimed working costs you. You’re free to have that perspective but I think it is unfortunate and does not contribute to one’s well being. You can, simply for your own benefit, decide to take a different view on it, without having to change any factual truths. You get paid for your work.
I wouldn’t want to think that somebody is taking something that belongs to me away from me. That is not a pleasant feeling.
Hardly anyone would work if the downsides outweighed their personal benefit. Actually, some people decide not to. It’s a trade-off that I’m personally happy to take by working. I enjoy my benefits. Feel free to quit! If it would cost me more than I gain from it, your original point, I would certainly do that.
The redistributive effect of taxes is a feature, not a bug. Inequality distorts political and social dynamics. One of the functions of taxation is to make rich people less rich, and we shouldn't run from that.
The goal is to mitigate inequality not eliminate it. Someone making 10x as much as the average person has minimal impact, 100x isn’t a big deal, but you keep adding zeros especially with passive income and there’s significant repercussions.
US inequality increased significantly after the top tax rates, long term capital gains, etc declined significantly. There’s no question those are related, it was explicitly the intended effect.
It doesn't seem to have the intended effects in other countries. Income inequality has gone up in other places such as Europe too. The real driver seems to be the modernization of jobs with the job types moving from secondary to tertiary types, especially knowledge work. The main reason the wealth is uneven here more so than in other countries is because of the big tech companies that we have and others don't. All those unrealized gains from company ownership are the main driver of the extra 20-30% the top people have vs the top people of other countries.
Again it’s a question of scale. There’s a bunch of countries with higher levels of wealth inequality than the US like Zambia and Russia so it’s the result of lots of forces.
Wealth inequality can increase from trends which are net positive but that doesn’t change the fact it’s a net negative. Thus, changes to the tax code specifically designed to increase wealth inequality working shouldn’t be surprising even if other factors are also in play.
As such once people can lock in a reasonable retirement they often get really conservative.