Sunday, August 05, 2007

Tax These People

Tax These People: "These Silicon Valley millionaires seem to me to be a perfect example of why we need more progressive taxation.  It's not that they're unsympathetic characters -- they work very hard, and they seem like perfectly nice people.  The trouble is that they're a case study in how the marginal utility of money diminishes, especially when there's nothing left to pursue but positional goods:

‘Everyone around here looks at the people above them,’ said Gary Kremen, the 43-year-old founder of Match.com, a popular online dating service. ‘It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars.'

...Silicon Valley offers an unusual twist on keeping up with the Joneses. The venture capitalist two doors down might own a Cessna Citation X private jet. The father of your 8-year-old’s best friend, who has not worked for two years, drives a bright yellow Ferrari.

Apart from one woman who fulfilled a childhood dream by having a swimming pool in her backyard, there don't seem to be many people who are using their wealth to satisfy deeply felt personal desires. 

Laffer curve fans won't be happy with this article either.  The people that the article describes are working 60-hour weeks and coming in on weekends despite their high tax rates.  And the occasionally-mentioned people who had opted out of the Silicon Valley rat race didn't do it because they realized that high tax rates meant that their work was insufficiently remunerative.  They left because they'd made enough money to ensure a high standard of living for the rest of their lives.

If the central idea behind the Laffer curve is that high tax rates decrease revenue by discouraging work, it's possible that there are cases in the article that bend the curve backwards.  If part of the reason why the Gage family left for a wonderful house in Oregon with their $3 million was that they'd made enough money to live as they wanted to, we have a case that bends the curve backwards.  If people are planning to make a fixed amount of money after which they can move away and live comfortably for the rest of their lives, higher tax revenues actually encourage work.  They make you work a longer time to accumulate the millions you need to live comfortably.  And as you work longer at higher tax rates, you pour more money into the federal coffers. 

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(Via Ezra Klein.)

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