Wealth and motivation

[steuard]

A conversation [locked post] over on akiko's journal has me thinking about taxation, particularly taxation of the very wealthiest people in our society. In this post I'm not interested in most of the arguments about what tax rates are appropriate or fair for various income groups, but I need to describe one argument for context. One major argument against higher tax rates for the very rich is that people who earn large incomes tend to be the most productive as well: taxing them too heavily would reduce their incentive to work and thus hurt society as a whole.

But that got me thinking: when you're already earning many times as much each year as you need not just to support yourself but to purchase almost any luxury[1], what is the incentive to work harder? (Heck, what's the incentive not to slack off?) I see a few possibilities, but I'm not sure that any of them would be affected by even a moderate increase in marginal tax rate:

• A desire for the next super-luxury item. There are always things that you don't quite have the money to buy; maybe the person's eye is always on that next goal that's just out of reach. But if this is the motivating factor, it would be just as true regardless of marginal tax rate.


• A means of keeping score. Some people may want to earn more to prove to themselves and to the world how valuable they are (either directly via their salary or indirectly by being able to afford more visible luxuries than their peer group). But it seems like any monotonic function of raw salary would have the same score-keeping benefit in principle. As long as the marginal tax rate isn't so close to 100% that nobody can tell you're earning more, it shouldn't much matter.


• A plan to pass wealth to the next generation. Some people want to earn lots of money so their children won't have to worry about money. But this isn't all that different than the points above (as noted in [1], every two years' salary could set up a kid in reasonable comfort for life). Past a certain point, your kids' wealth is pretty much guaranteed, too (and your grandkids', for that matter).

So what's the actual reason that a higher marginal tax rate on the super-rich would discourage them from working more? I'm sure I'm missing something. Any thoughts?

[1] According to this data, the top 1% of earners in the US make an average of $1 million each year: that means that every two years they could set up an endowment to support Kim and me at more than our current standard of living basically forever.

Comments

[jminnis.livejournal.com]

On top of that, wealthy people tend to be well aware of such issues (exceptions abound, especially among lottery winners), and if given a choice, why not take the better option? I pick up pennies, for example: It beats not picking them up.

Also, "The Wealthy" is generally a self-selected group of frugal people. The ability to accumulate and earn money from capital is a primary reason that people become (and stay) wealthy.

[corpsefairy.livejournal.com]

Generally a self-selected group? I don't think so. Wealth is transferred generationally; you can't select the family you're born into.

[zathrus.livejournal.com]

Some wealth is transferred generationally, 'tis true. What's generally more important than the amount of money you inherit, however, is the attitudes you learn from your family regarding money. Poor people who win the lottery tend to spend it all and return to being poor; many rich people started out poor or middle-class, made the most of the opportunities available to them, lived frugally, and learned to invest wisely and build wealth slowly over time. People move from one socioeconomic class to another pretty often in the United States.

Newt

[feuervogel]

Not so much: More than 7 in 10 Americans who start at the bottom of the income ladder remain below middle income status 10 years later

Also, the reason poor people spend money when they get it is because they have it so rarely. There's no education about investment, saving, etc among the poor. Your example of people living frugally, etc, assumes that there are opportunities available, which for a large group of people there are NOT.

[beth_leonard]

We are seeing the same numbers see a different story. You are seeing that 7 of 10 people who start in the lowest 20% are still poor and miserable 10 years later. I'm seeing that 3 of 10 people who start off in the bottom 20% are in the TOP HALF after only 10 years of trying. Not only that, but 7 are in the bottom HALF after 10 years -- starting from the bottom 20% that means that some of those people (your source cleverly doesn't say how many, because it hurts it's point) are now in the 20-50th percentile -- i.e. they've moved up. To me that's a far cry from "hard work doesn't mean shit."

Same numbers, different interpretation. I choose the one with hope.

--Beth

[feuervogel]

Hope doesn't trump the vicious reality of having dark skin or tits in this country.

[corpsefairy.livejournal.com]

The problem with your claim here is that the flip side is quite ugly: You are essentially saying that if you're poor, all you need to do is work hard and you'll be better off. That is patently not true, as has been explained elsewhere, and the corresponding side to that is that poor people are poor because they DON'T work hard.

I don't know if you read akiko's LJ, but tiurin has some really excellent comments there about the problems with mobility, and the related problems of privilege. I think that is what a lot of these discussions are coming down to. It's a very important concept, and it's not one that's easy to explain sufficiently well, especially if you don't have a background in women's or African American studies or something similar.

Regarding the lottery: Are you sure about that? Sure, there are newspaper stories about people who win and then spend it all within a year, but that's not good data. Obviously, the newspaper is printing it because it makes a good story, not because that's an actual tendency.

Also, moving from one class to another is a hell of a lot easier if you already have a leg up. Going from third to fourth quintile will still take work, but if you're in the third already you likely have a lot of things available to you, like education and the expectation from your parents and peers that you'll do well. (That makes a HUGE difference.) If you're in the bottom or fourth quintile, not so much. This whole "pull yourself up by your own bootstraps" notion doesn't work so well if you can't even afford to buy boots.