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.
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.
Spending from your 401k is different than liquidating it (until the end... if you've got a month or a year of funds in the 401k and you take it all out, sure that's liquidated, but if it took you 10+ years to use it all up, it's not liquidating in casual conversation)
> Spending from your 401k is different than liquidating it
Define "liquidating". Do you mean moving all investments in the 401k to cash and equivalents? That seems sensible if you don't want any more market-risk exposure going forward. Withdrawing everything at once seems ill-advised because you'll get hit with high taxes unless your 401k balance is really small.
As such once people can lock in a reasonable retirement they often get really conservative.