[justinpaulson]

I think becoming wealthy is incentive enough to become wealthy. No one is going to stop trying to be wealthy just because they might get taxed for that wealth. If anything, they will just try to hide it in another state. But the argument that a wealth tax would remove any incentive to become wealthy is not very strong.

[cryptonector]

If a lottery ticket's prices goes up, and the purse goes down and/or the odds get longer, you'll be less inclined to buy a ticket.

It's the same with work. If hard work is less likely to pay off, or if you'll have to work harder, or both, you'll be less likely to work harder. Some people will work harder anyways, and many will be discouraged.

Marginal effects matter. This is why dynamic analysis is important.

[majormajor]

And the marginal effects of having 100M in the bank over 10M in the bank over 1M over 100K are all still huge for any feasible tax scheme I could imagine.

What does your world look like where you'd be too taxed to bother wanting to be financially independent?

[oarsinsync]

#define financially independent

That phrase means different things to different people. In some parts of the world, $50k could consider you to be financially independent. $500k in others, and in some parts, you'd need $5m - $50m.

What if I told you it cost $5/day to rent a luxury hotel room with cleaning, full board, and high speed broadband provided as standard?

What if I told you it cost $1500/month for a small studio apartment with no furnishings or anything else?

Both are true, both are real, both require different amounts of money in order to achieve financial independence.

I realise now that I haven't actually answered your question:

> What does your world look like where you'd be too taxed to bother wanting to be financially independent?

Rewriting that to be "What does your world look like where you'd be too taxed to bother generating more wealth?"

There comes a point of diminishing returns. If you work a 40 hour week already and make a decent living at 40-50%, and now get told that anything above that will get taxed at 75%, unless you're going to somehow generate more than double, you're going to spend that time doing more productive things (like spending it with your family).

Arguably, that's a net-positive for society as a whole, but may be a net-negative for the economy/GDP of the country you reside in.

[geofft]

> If you work a 40 hour week already and make a decent living at 40-50%, and now get told that anything above that will get taxed at 75%, unless you're going to somehow generate more than double, you're going to spend that time doing more productive things (like spending it with your family).

Hold up -

1. Why is this about working more hours, instead of working harder / more effectively? There are 168 hours in a week; even if you don't sleep, you cannot maximize your income beyond about 4x just by working more. I am currently making about 15x the lowest hourly rate I ever worked for, and I'm still fairly early in my career and feel like there's a lot of room for my salary to increase as I become more skilled.

2. I'm reading the discussion was about a tax on wealth, not a tax on income (dwealth/dt). If you're making a decent living and want to make more money so you can spend it on things that are not investments (consumer goods like video games, services like vacation travel/hotels, charity, raising more children, sending them to college), a tax on wealth will not affect you, because your wealth stays right where it is. And doing all that is net-positive for the economy.

'majormajor is clearly talking about wealth in the sense of static assets, not change in assets over time: I'm worried about having a single medical emergency, not having one every year. Make enough for your (static) safety net, then stop making more money.

[sheepmullet]

> Why is this about working more hours, instead of working harder / more effectively?

Because they are tightly linked for most people.

I've managed to increase my income ~5x from what it was when I started but to do that I have had to put in 2 hours/day of side study.

[geofft]

Sure, and if I insisted on working exactly 40 hours I probably would not have gotten the raises or opportunities I got. But I am personally nowhere close to the amount of income we're talking about here, let alone wealth, and I've sort of maxed out my ability to be productive. Do we think that at the margin that a wealth tax would kick in - which is specifically not most people - the number of hours worked is relevant?

[majormajor]

There's a header of "American" on this very post, and it's specifically talking about the US, so I'm starting there.

The biggest potential cost of someone in the US, with employer-tied healthcare, seems like medical. You could hit the unlucky jackpot and have a seven-figure+ medical bill over the course of a few years or life. So let's set "able to handle that for yourself and your family" as the baseline for being considered independent, since that's probably bigger risk than, say, "owning but then losing a multimillion-dollar-home to a flood" or somesuch.

But I also don't think this term is generally understood as poorly as you suggest.

--------

Responding to context complaints aside, you're still talking income tax, not wealth tax. My question was what this hypothetical negative-use wealth tax looks like, since the further-upthread post had suggested taxing wealth instead of using income as one of (several) proxies.

But also, my hours have not increased with my compensation in the manner you suggest. I know that every additional dollar loses 40% or whatever of it, I still would rather have it than not have it. 5%, probably wouldn't care, but would I still want more autonomy and responsibility at work for the sake of more feeling in control? Maybe. Maybe not. There are both financial and non-financial sides there, but if income was the sole basis for choosing our roles, we'd be in a very different-looking world.

So that's why I'm skeptical that a wealth tax would make me give up having big dreams—the personal safety net and toys are still incredibly appealing.

[oarsinsync]

All fair points, but even within the US, $5m goes as far in some states as $50m does in some cities. Besides that, one person's "personal safety net and toys" is another person's "not enough", is another person's "greed".

Meanwhile, you're getting taxed on the estate you're trying to build as you build it.

Twice.

Every year.

As someone who's currently attempting to build his own personal empire, I'm incredibly glad I don't have a wealth tax to contend with. It's hard enough as it is, without knowing that if I start to draw close, it'll get harder and harder as I go. I might not have started trying if it didn't seem possible in the first place. Then again, I might have done it anyway. Where's a quantum theorist when you need one?

[jacquesm]

A 1% wealthtax is nothing to be scared of (I'm living with it), if you can't make 1% on your capital you are doing something wrong.

[majormajor]

Good point, I was making an assumption that this was a wholesale replacement scenario for income and other taxes.

My only other quibble is that I haven't seen healthcare costs or insurance premiums scale to that 10x factor like housing prices do rural-vs-urban, otherwise I'd personally be perfectly happy with moving and retiring early. Get the right cancer or nasty chronic condition and you're gonna be out some serious bucks.

[cryptonector]

For young people just starting out in life, medical expenses are their lowest.

Always always consider the young.

Europe's fertility rates are a disaster (and post-2008 American fertility rates too were disastrous). In particular they are a disaster because so much of their economies depend on the tax base growing, which means that productivity growth has to be even higher than it would have to have been with a higher fertility rate. The causes of this surely include making the burdens unbearable on the young who might want to start families. Beating up the young because they have good health, is an unspeakable insanity.

[sokoloff]

Out of curiosity, where did you have in mind for the $5 luxury hotel, room, board, and high-speed internet? That sounds like a place many of us might like to put on the docket for later.

[fragmede]

Btw, $1,500 for a studio is about half the going rate in SF.

[BatFastard]

Where can I get a luxury hotel room for 5 USD a day?

[cryptonector]

I don't buy lottery tickets as it is. Many people in marginal financial positions do, and lots of tickets at that. Now suppose that ticket prices went up by a factor of 10 and purses down by a factor of ten, and odds lengthened some. Why would anyone in a marginal financial situation not then reduce their total number of tickets bought?! Of course they would!

Now to answer your question, consider say, a prospective engineering student. They could go to school and come out with $150k or more in debt. But if their post-tax income potential goes down (especially initially), thus their ability to pay off that debt goes down, thus making it more crushing than it already would be, why on Earth would they even consider bothering to go to school then?! Of course a lot of potential students would find something else to do! It's utterly obvious. Painfully obvious. So right there you'll have a decrease in the number of people pursuing certain careers -- hard work being avoided.

Even beyond the economic effect on students, there is just a basic personal calculus as well. You might choose to live with a lower income and more free time to enjoy as you wish (if with fewer luxuries than you might like) than work harder and harder for less and less reward. You only have so many prime years for enjoying the one life you have. Everything is a trade-off. You might work harder now if it means you'll be better able to enjoy some free time later, but if working harder will make little difference to your ability to enjoy free time in the future, why work harder?

And beyond that, we know what low incentives did to would-be hard workers' desire to work hard in the U.S.S.R. and such places. Spoilers: they certainly didn't work harder when they didn't have guns to their heads incentivizing them.

By the way, the same sorts who say that increasing income taxes (or otherwise putting a ceiling on incomes) wouldn't have an effect on how hard people work... also tend to argue that higher tobacco taxes will reduce tobacco use. We all know about the prodigious powers of doublethink in some quarters, but don't think for a minute that everyone accepts doublethink, let alone masters it. And sure, you yourself didn't just make that argument, but I bet you do when it comes to topics where that argument is convenient. I, on the other hand, accept that punitive/confiscatory taxes only serve to reduce the amount of activity being taxed regardless of whether it is an activity I appreciate. If you ever find yourself making that argument, please recognize it and choose consistency.

[cvsh]

A lottery ticket is just about the worst example you could use to prove the connection between risk and motivation. It has a low chance of paying off, yet people still buy them all the time.

[DrScump]

"If a lottery ticket's prices goes up, and the purse goes down and/or the odds get longer, you'll be less inclined to buy a ticket"

Has this effect been shown in the real world? That implies more interest in the odds than their target market demonstrates any interest in (hence the term, "for the math-impaired").

[kss238]

I'm fairly certain that the opposite held true in reality. When the multi state lottery association decreased the is of winning the Powerball last year,sales went up a lot because of the lure of the $1B payouts.

[kamaal]

>>Some people will work harder anyways, and many will be discouraged.

Some people will work harder, by moving to a different country, where the tax laws are saner and don't punish hard working prime movers for the very value they provide.

[geofft]

So why doesn't the government pay people who make more money? Won't that incentivize the right things?

(I mean, I think this is obviously silly, but it seems to hold up by exactly the same argument.)

[dclowd9901]

Right, it only becomes a problem if you tax wealth so much that the net value of the next dollar is lower than the effort required to obtain it. At a certain level of wealth, where one is effectively paying others to invest their money for them, and they're earning off interest, that effort is basically 0.