[1999]

I think this article sets up the paper against two incorrect worldviews:

1. America is a genetic meritocracy -- you achievement is based on your potential. My interpretation of "traditional" American values is more focused around hard work, toughness, and foresight ... this sort of thing: https://www.trumanlibrary.org/lifetimes/farm.htm . I'm pretty sure the idea that your academic performance determines your place in society is the tradition of somewhere but I don't think it is America: https://en.wikipedia.org/wiki/Imperial_examination .

2. That going to college is not a direct product of wealth. Spending 4 years of adulthood doing something other than work could itself be used as a measurement of wealth. It feels to me like they are comparing two slightly different measurements of wealth and acting like it is something else.

Almost everyone in the study population would have gone to college before 1990, so their choices aren't based on the current situation, they are based on the situation 30 years ago as well.

The one thing I am positive about is that is provides evidence that wealth is actually a positive influence on education ... maybe it will help people who value education above all support pro-wealth policies like lower tax.

[perfunctory]

I never really understood why lower tax is pro-wealth. What does it really mean? I am not trolling, I am really curious. Let's say I see some opportunity to grow my wealth, am I going to look at the current tax level and if it's above certain threshold I am just gonna say screw it, I am not taking it?

[anonymous5133]

Yup, exactly which is why the rates for capital gains are reduced. If you make the capital gains high enough the reward you get for taking the risk won't be high enough.

I think it has a bigger deterrence effect with non-capital gains income. Once you start getting in the higher income tax brackets, it isn't really worth it to put in more hours for additional income when 50% of it is taken in income tax off the top. That's how I look at it at least.

[perfunctory]

I am paying 52% income tax rate in the upper bracket. I doesn't stop me from trying to increase my income.

Clarification - I am not making any claims as to whether I support this tax level or not. I am just saying it doesn't discourage me from trying to get ahead.

[sokoloff]

For my own account, I pay a similar marginal rate (my state tax is slightly lower than yours, but all in I’m at 50-ish percent).

That distorts my willingness to employ lower skilled help. I change my own brakes because the $250 in labor/markup that I might have to pay costs me $500 to earn. If I don’t have a productive way to earn more than $500 in exchange for the small time savings, my family is better off with my changing brakes than working on something else and a mechanic doesn’t get 2.5 hours of pay and some shop loses out on their cut. Same story for lawn care and other tasks that could easily help support employment of some workers.

[conanbatt]

In economic modeling of course it does, and in terms of individual experience, which can vary from that , Im willing to challenge it as well.

If they told you that if you volunteered for government on saturdays, they would exempt you from income tax altogether, would you do it?

[TACIXAT]

I would, that's a great deal.

[conanbatt]

Im pretty sure most people would: its working more time, for paying less taxes. An intuitive example of how taxation does affect the amount of time worked, at any income level.

[perfunctory]

> reward you get for taking the risk won't be high enough.

Also, as long as the tax rate is less than 100%, the reward will be higher than 0, which is what you get if you don't invest at all.

[SaintGhurka]

That reasoning is correct if the investment is risk-free.

But what if you are investing in stocks or corporate bonds or a broadway play or a promising health technology company like Theranos? There is a non-trivial chance that your reward will be less than 0 - and it could even be a complete wipeout. The low capital gains rate is meant to encourage people to put money at risk rather than sit on it.

[perfunctory]

We are talking about risk-adjusted return. That's right. So as I long as expected risk-adjusted return is positive, a rational investor is supposed to invest regardless of the tax rate. I would think.

[socketnaut]

It's not that simple because taxes modify gains but not losses.

Imagine we bet $1 on a coin toss. The expected value for either of us is $0. Now imagine the winner is required to pay 10% tax on his proceeds. The expected value becomes (-$1.00 + $.90)/2 = -$0.05.

[SamReidHughes]

Capital gains tax is calculated from nominal gains instead of inflation-adjusted gains. That's one reason it's lower.

[1999]

I'm not really considering incentives. I think most people will basically spend their whole lives working, even if you take half their money and throw it down a hole -- maybe especially even if you do that.

To increase wealth the lower tax will have to mean more money under the control of the individual. It doesn't guarantee savings and investment but it makes it possible. For the portion that is taxed, you don't control consumption versus savings, you're locked into the same outcome as everyone else.

[TheDong]

One problem you may be encountering with your phrasing is that you aren't distinguishing between two very different things:

1. A lower tax for everyone, including the super-rich.

2. A lower tax for the poor/middle-class, but a progressive and higher tax for the rich.

The first, lowering the tax-rate for everyone, only really helps the super-rich in the first place. The poor currently pay relatively few taxes. Lowering the tax-rate across the board will result in the rich taking home a larger absolute increase in wealth, so it will shift further spending power to the rich.

The second is a common enough socialist talking point, and if that's what you mean to talk about, saying "lower taxes" is a terrible way to do it and will put socialists against you.

I don't really see how you think lowering the tax rate will increase individual wealth for anyone not already doing well. If we reduce the tax rate, that means public transit, healthcare, and schools (all heavily tax subsidized) will suffer, and any change in those disproportionally impacts the poor.

I know you're not literally saying "fuck the poor, they pay negligible taxes now, so let's cut taxes and raise their healthcare costs by crippling the government", but talking about cutting taxes across the board really isn't far from saying "give the wealthy lots more money, the poor a tiny bit more money, and cut funding on social safety nets that only help the poor."

[conanbatt]

Yes, in microeconomic modeling you find that when your income increases, two competing forces go into effect: that you want to work more because you make more money for each unit you provide, and the "consumption" of leisure goes up because it is now affordable.

Which one wins is something to figure out empirically, but look at the fact that europe has more leisure than the US does, even at the same level of income.

[mikekij]

A rational investor is concerned with risk-adjust returns after taxes. The fact that capital gains rates are lower than income rates allows an investor to accept a higher level of risk than if the two tax rates were lower.

[perfunctory]

Ok, but this has only to do with relative tax rates - capital gains vs. income. It says nothing about absolute rates.

[TheDong]

> The one thing I am positive about is that is provides evidence that wealth is actually a positive influence on education ... maybe it will help people who value education above all support pro-wealth policies like lower tax.

I think a valid take away would also be "we should break this relationship such that everyone gets education, regardless of wealth and background".

That seems easier to educate more people than to make more people wealthy.

> maybe it will help people who value education above all support pro-wealth policies like lower tax

I value education very much. I want to see a significantly higher tax-rate because I think it improves the quality of education for those worse off.

I don't think this article changes my view in the least. Our public school system is disgustingly bad in poor neighbourhoods, and I would argue that no small part of wealthy kids going to college is because their parents put them into better schools, either by living in more affluent areas with better public school systems, or by paying for private school.

I would much rather see higher tax-rates with that money allocated to the public school system to reduce the disparity between the public schools in poor and rich areas.

[1999]

One project I think is interesting is LeBron James' school. When I looked at what the biggest changes are between his school and a normal school, it all looks to me like surrogate parenting -- like he is moving elements from the parenting column into the school column: meals, clothing, transportation, scholarships, literally helping the parents find jobs. My vision for what creates academic and financial success is similar to LeBron James, but I don't support expanding the education system to include more daycare and parenting elements, and I think the government is uniquely horrible at delivering those elements at scale.

In my view the educational component is fine, access to information is better than ever, the major difference is the negative effects of the poverty environment, which can't be resolved through the education system.

Another thing that has to be identified is the components that are zero-sum versus non-zero-sum. In a zero-sum competitive process if educational attainment is based on resource consumption, the wealthy will always win.

I think we basically have an opposite view of the causal relationship. I think education is a product of prosperity, and I think you view prosperity as a product of education. It could be resolved by a randomized controlled trial like drugs are tested, but unfortunately it would be unethical since we'd have to randomly deny people education, or destroy their prosperity.

[TheDong]

Based on that example and your support for lowering taxes, I think we may have a more basic disagreement.

I think good societal change, whether it's improving the quality of the life of the ghetto, or whether it's improving education, is better driven by the government than by rich people taking pity on the rest of us.

LeBron's experiment is laudable, but a sustainable solution will come from the government, which is the only entity that can truly direct the money of the entire country (via taxes).

Whether the true problem lies in education or environment, I see a significantly higher tax rate on the wealthy as the easiest way to sustainably improve our situation.

[1999]

At least on the point of pity of the rich versus government organized relief, I'd definitely support closing the charity and religion loopholes that let the rich escape huge taxes. Another measure I'd support is removing all distinctions between types of income and spending so labor isn't punished relative to capital. It will be difficult because the rich are the most resistant to being taxed, and if they aren't their wealth is temporary. But I think the political will is there and I think it can be done.

Here is a chart of 2015 government spending vs GDP: https://data.oecd.org/gga/general-government-spending.htm

So the US is on the low end of things with the government spending 37.6% of GDP ... looking at the current level of service provided by the all levels of government, that is based on an almost 40% share of the output of the wealthiest country to ever exist. I think that is a pathetic result. Given 40% of the output of the US economy, I think the government should be able to provide all necessities to all citizens at a high level of service: food, shelter, transportation, medicine, education, law enforcement, military defence.

So based on their huge GDP share and horrible performance, I'm against allocating them a higher share. I think the most promising approach would be pure redistribution since it would sidestep the issue of the government's inefficiency. Just take the money from the rich and literally give it to the poor but I don't think it is politically feasible.

[sokoloff]

My observations are that the problems with the public schools in poor neighborhoods are much more neighborhood and family related than money-for-schools related. Sure, more money might help some, but you’re not going to turn a currently terrible school district into a model one with school money alone.

Parents have at least 3x as much time and probably a greater ratio of impact on education than the school does.