[eli_gottlieb]

Marginal tax rates on the top earners (ie: the high-tech sector) are 46% here in Israel and we've got plenty of start-ups.

And yes, it's about policies that make sense for the economic constraints of the government and the values of the voters. Key words there being values of the voters. France might have a very state-driven economy, but most of the world's top economies certainly don't take the American neoliberal wannabe-anarcho-capitalist approach.

[LekkoscPiwa]

> Marginal tax rates on the top earners (ie: the high-tech >sector) are 46% here in Israel and we've got plenty of >start-ups.

And if the rate was 15% your guess is there would be even more start-ups or less? And if more, wouldn't that be more valuable for the Israeli economy than to give this 30% difference to politicians to waste?

>And yes, it's about policies that make sense for the >economic constraints of the government and the values of the >voters. Key words there being values of the voters.

Agree 100% here with you. However when people vote for something they rarely see the side-effects that quite often are much worse than the potential benefits. Like with cough medicine that gives you heart attack. People don't see things through at times. They'll vote for a politician who promises the most, understanding he'll go deeply in debt and not really caring that their children will have to pay it all off. Democracy gives the people great power, the problem is they don't want to accept responsibility for it. I have a great example here: In 1990s Democrats in the USA got this really good idea that all Americans should have a house. Even ones who couldn't afford it. What they did is they told the banks: look we (the Government) are going to guarantee all the mortgages. If you give a mortgage to someone and that person stops repaying it, the Government will buy the mortgage back using taxpayers money. And you know people voted for it. So all the folks who really weren't qualified got mortgages they couldn't afford. How markets work is that there is a balance between greed and fear. You're greedy to give someone a mortgage but afraid he will not repay. The Government took the fear part out of equation. Obviously the whole thing had to collapse. And in 2008 it did. And what caused that? Good intentions, socialism - let's give house to everyone. Now everyone's screwed over. And the funniest part is that now they blame bankers and capitalism for that. It was socialistic idea from the start.

>France might have a very state-driven economy, but most of >the world's top economies certainly don't take the American >neoliberal wannabe-anarcho-capitalist approach.

US is much more socialist they you could think. They talk the talk but don't walk the walk. Currently in the US there are more people who get Government benefits than those who pay the income tax. That's not capitalism. If you want to see capitalism look at China.

[eli_gottlieb]

US is much more socialist they you could think. They talk the talk but don't walk the walk. Currently in the US there are more people who get Government benefits than those who pay the income tax. That's not capitalism. If you want to see capitalism look at China.

First: you're thinking of social-democracy, not socialism.

But honestly, using China as an argument in favor of capitalism is INCREDIBLY BAD. China looks pretty dystopian to outsiders.

And if the rate was 15% your guess is there would be even more start-ups or less? And if more, wouldn't that be more valuable for the Israeli economy than to give this 30% difference to politicians to waste?

If the rate was 15%, I would guess that there would be roughly the same amount of start-ups. Never has the real business world been shown to respond predominantly to income tax rates. Other factors have always dominated the issue of business formation: availability of skilled labor force, public R&D investment, available infrastructure, solid legal system, etc.

Good intentions, socialism - let's give house to everyone. Now everyone's screwed over.

Neither socialism nor social-democracy gives people loans. You're talking about some kind of weird American state-capitalist thingy. In a social democracy, there are what the Brits call "council houses": available houses or apartments literally owned by the local government and leased or given out based on human need.

Get your brain out of the America and into the sensible world.

[LekkoscPiwa]

China is capitalistic that's why so successful economically. Human rights, democracy, etc. - I agree - a total disaster. But when they talk about Greece being in debt, US being in debt, all these countries indebted through their noses, they never mention who the creditor is. China is. You see they can ignore the image they have as they are our creditors. We are at their will. And that's because despite all their flaws they embrace capitalism.

So, if the amount of startups would be the same why not to tax at 80% ? Would it still be the same?

I wouldn't start one with 45% tax rate, that's for sure. I agree I could start one if the chance of success were really good. I can take that. It's 45% tax, but I'm pretty sure it'll work out. But if you want to have a real risk-taking start-up creating a market - 45% will be a no-no. So that tax rate will force founders to look into easy solutions, not an innovative stuff that will change the world. That's why the really innovative things come out of the US because it still makes business sense to try starting them there. Google, MS, Facebook, Apple. These were all extremely high risk. No sense even approaching them with the Government cutting half of the potential reward when chances are 1 in 1000. 1 in 5 it may make sense. For my business now the rate is about 1 in 10. So, it wouldn't make sense with 45% going to the taxman. I'm sorry I wouldn't start my startup in Israel. Risk/reward ratio would be just too much against me. I'd rather sit with my ass in the comfortable office paying off mortgage.

Your council houses exist in the US too. They are called "projects" and are free housing for poor. Literally free: http://en.wikipedia.org/wiki/Public_housing#United_States

You see socialism in the US progressed so much that they are even one step in front of the Brits. After building all the Projects they decided to do even more "good" and started promising banks to repay poor's mortgages.

[eli_gottlieb]

All very nice for you, but we've hit a core issue: you are now talking about your personal preferences for tax rates, rather than addressing the actual economic question regarding start-ups.

The economic question is: "At what level of taxation (both in terms of effective tax percentage and income level where it kicks in) do taxes become the largest factor preventing the formation of start-up companies?" We need to be talking about Big-O optimization: we should always solve first the problem that is largest and whose solution will cause the fewest new problems.

So, if the amount of startups would be the same why not to tax at 80% ? Would it still be the same?

See above. You are asking the wrong question: "Do we get more start-ups with a higher tax rate or a lower tax rate?" That assumes tax rates on high-income professionals (in Israel that 46% rate is for the top 10% of income-earners, the people earning the most income you can without owning a company) are the dominant factor in whether or not a start-up gets founded.

This assumption is ideologically based (in American anti-tax rhetoric) and almost definitely wrong. Why? It's obvious: a start-up founder running on savings and investment isn't actually bringing in enough new income to get hit with the top tax-rate! Think about it: if you're a founder getting your start-up going, in any country, do you burn your seed money to give yourself a salary in the top 10% of incomes, or do you forgo the larger personal income to keep more of the money in the business for a longer time? Obviously the latter.

So the tax rate on the rich and the upper-upper middle class is not the deciding factor. To pose a counterpoint: would you found a start-up in a country with a 10% income tax but no intellectual-property laws?

[LekkoscPiwa]

First of all, honestly, very nice talking to you. As a fiscal (not social!) conservative I enjoy discussions with more of a left-wing friends a lot! So, just wanted to say it's cool talking with you. Which doesn't mean I won't be trying to be badass bad dealing with your responses, lol.

>All very nice for you, but we've hit a core issue: you are >now talking about your personal preferences for tax rates, >rather than addressing the actual economic question >regarding start-ups. >The economic question is: "At what level of taxation (both >in terms of effective tax percentage and income level where >it kicks in) do taxes become the largest factor preventing> >the formation of start-up companies?" We need to be talking >about Big-O >optimization: we should always solve first the >problem that is largest and whose solution will cause the >fewest new problems.

That's not that difficult to answer that question really. Just look at the data. Where most of the successful start-ups that made it big come from? Start-ups that changed the world (innovation) or created whole new segments of the economy? Amazon, Ebay, Facebook, Microsoft, Apple, GitHub, Oracle, Intel, whatever. Where are they from? France? Israel? Japan? Australia? Canada? Russia? You know the answer. US. And as you pointed out yourself that is where the "anarcho-capitalism" (lol) is, so please connect the dots ;-) (no offense intended) Actually, the only start-up I can think of that made it big and is non-US based is Skype (based of the UK). You know any others in the IT that made it big and created a new market or changed the world or created whole new market segments and are not US-based?

I think that the business environment is important factor as well. If a country imposes 75% income tax on whoever/whatever it just tells you a whole lot about the public attitudes towards business and capital in that country. It is like a thermometer showing you have a fever. Once you see 39C degrees you know that's no good no matter what's the excuse. It's the same with the tax rate for the markets. 75% looks like very unfriendly place business-wise imposed no matter on whom and for what. This is why it scares off the capital. Because it shows that the general public treats businesses with suspicion. So maybe better to invest somewhere else.

>This assumption is ideologically based (in American anti-tax >rhetoric) and almost definitely wrong. Why? It's obvious: a >start-up founder running on savings and investment isn't >actually bringing in enough new income to get hit with the >top tax-rate! Think >about it: if you're a founder getting >your start-up going, in any country, do you burn your seed >money to give yourself a salary in the top 10% of incomes, >or do you forgo the larger personal income to keep more of >the money in the business for a longer >time? Obviously the >latter.

Obviously not. I work almost for free for many years for a prospect of a single huge payout at the end. If I sell my business for $1 million, I don't want half of it to be taken by the Government! Let me explain in more detail below.

Let' say I sell the business for $1M. Let's say the tax rate is 46%. So, after 2 years of work and investing $100k in it, I make the math: 1. My last job I made $150k a year. Two years equals $300k in lost income. 2. $100k invested from savings 3. Low quality of life for the family 4. $1,000,000 - $460,000 = $540,000 after taxes. (yes, I know it'll be less because rates are progressive, so let's say: $1,000,000 - $350,000 = $650,000) 5. $650,000 - $100k burnt savings - $300k lost income equals... yeah! I just made $250k profit! While the Government made $350k.

I invested years of my live, substandard living, and $100k in savings plus $300k in lost income. The Government invested nothing. Oh, actually it has been trying to make it as difficult for me as possible all the time because that what Governments do by design when they come in touch with any business: regulations, paperwork, imposing controls, etc. So, at the end: I made $250k. The Government made $350k. You call this fair because I could use roads and sewage system? Geeez, thanks!

Now look at these numbers again as they explain why you won't see Google or Amazon going out of France or Israel any time soon.

As I said in the previous post the tax scheme that you have in Israel works only with a short-term business plan that is a sure thing. Like an IT consultancy when I know that clients are there for sure. And they are there right now. So, I don't loose $300k in income and don't need $100k in savings to work on something without any income for another 2 years. I can start today and have income tomorrow. But that's NOT how innovation happens. I'm sorry. Innovation takes time and funding. Your taxation scheme kills it before it even has chance to happen.

>So the tax rate on the rich and the upper-upper middle class >is not the deciding factor. To pose a counterpoint: would >you found a start-up in a country with a 10% income tax but >no intellectual-property laws?

No. But I would in a country with comparatively low income tax and very strong intellectual property laws.

[eli_gottlieb]

That's not that difficult to answer that question really. Just look at the data. Where most of the successful start-ups that made it big come from? Start-ups that changed the world (innovation) or created whole new segments of the economy? Amazon, Ebay, Facebook, Microsoft, Apple, GitHub, Oracle, Intel, whatever. Where are they from? France? Israel? Japan? Australia? Canada? Russia? You know the answer. US. And as you pointed out yourself that is where the "anarcho-capitalism" (lol) is, so please connect the dots ;-) (no offense intended) Actually, the only start-up I can think of that made it big and is non-US based is Skype (based of the UK). You know any others in the IT that made it big and created a new market or changed the world or created whole new market segments and are not US-based?

This is the kind of experimental design that would and should fail an undergrad experimental-design course. And I really mean that, I'm not trying to make an ideological point or condescend to you. This is really bad reasoning.

Not only have you jumped to claiming that Correlation Equals Causation, you're not even correlating tax rates (the variable you want to examine) with start-up success. You're correlating national headquarters with start-up success, and then claiming this says something about tax rates.

The fact that US tax rates have themselves varied over time and place is counterevidence against your claim! What does it mean to you if California-with-high-tax-rates produces as many start-ups as California-with-low-tax-rates? Or what does it say about California versus Texas versus New York versus Massachusetts? The actual evidence points towards Silicon Valley being special somehow rather than a general effect from tax rates.

There's also a huge issue with the phrasing, "Start-ups that changed the world (innovation) or created whole new segments of the economy?" To once again reference HPMoR, yes, only your start-ups are in this new reference category you've constructed to include only them by definition.

Let' say I sell the business for $1M. Let's say the tax rate is 46%. So, after 2 years of work and investing $100k in it, I make the math: 1. My last job I made $150k a year. Two years equals $300k in lost income. 2. $100k invested from savings 3. Low quality of life for the family 4. $1,000,000 - $460,000 = $540,000 after taxes. (yes, I know it'll be less because rates are progressive, so let's say: $1,000,000 - $350,000 = $650,000) 5. $650,000 - $100k burnt savings - $300k lost income equals... yeah! I just made $250k profit! While the Government made $350k.

Sheer nonsense. Merely probably opportunity cost is not on the actual accounting books; you could have lost your job the next year anyway. You made $550k and the government got $350k.

Besides, if you already made $150k/year, you're ridiculously fortunate and you have no valid claim to society's pity. You made 61% of the net profits after a 46% tax rate, and for a small start-up sale like $1,000,000 a profit to the founder of $550k is pretty freaking good.

Now look at these numbers again as they explain why you won't see Google or Amazon going out of France or Israel any time soon.

http://mappedinisrael.com/ -- Try and stop us.