It's only real if you assume top earners have monetary incentives to work more, which is a very bold assumption in a world where the top earners don't even earn money through their work in the first place.

And again, the utility of income for an individual is logarithmic with regard to their income, which means the marginal utility is the inverse function and that never stopped the top earners to want more.

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zozbot234 3 days ago | parent [-]

Labor income is very important at the top end. The work a CEO performs in her superintendence of a large company generates what's economically labor income, even when paid as stock grants, options or the like. Basically all professional income (including that of devs) is labor income, not capital income.

(Besides, optimal taxation models also say that capital income should not be taxed at all, and you should concentrate "capital" taxes on sources of pure rent instead, with the rest of the burden falling on labor income and/or consumption! The intuition is that taxing invested capital is basically double taxation, since the apparent "returns" on capital are in fact wholly accounted for by time value and risk. There are important offsetting arguments, but these also become less relevant at the extreme top end of the scale.)

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littlestymaar 3 days ago | parent [-]

> Labor income is very important at the top end. The work a CEO performs in her superintendence of a large company generates what's economically labor income, even when paid as stock grants, options or the like. Basically all professional income (including that of devs) is labor income, not capital income.

If the CEO has a significant voting power in his company, then it's capital income even if the said income is “a salary”. Like it or not.

> Besides, optimal taxation models also say that capital income should not be taxed at all

It would be nice if people advocating for their political view could stop labeling their view as “optimal”, but hey, this is economics so here we are.

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zozbot234 3 days ago | parent [-]

The optimality results are drawn from modeling assumptions that happen to be fairly general, not from any specific political views. For instance, much of the real-world political advocacy of UBI or cash transfers towards low-income folks is downstream from arguments about the predicted efficacy of this as a kind of redistribution; the arguments are not themselves politically motivated. The argument for taxing pure rents only, as opposed to productive capital, is structurally quite similar; as is the general argument for paying careful attention to incentive effects at the top end of the income distribution.

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littlestymaar 2 days ago | parent [-]

> The optimality results are drawn from modeling assumptions that happen to be fairly general, not from any specific political views

The idea that someone rich would “work less and thus produce less value to the society if their marginal tax rate was non-zero” isn't “fairly general” it's straight Randian and it's not how the world works. Same for the idea that individual income reflect the value they create to society.

The idea that you ought not to tax capital is also politically motivated.

Anything can be said to be “optimal” if you pick the hypothesis accordingly, and that's exactly what's being done here… It may work on paper for a world populated by a spherical John Galt in vacuum, but it tells you nothing about the real world.

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zozbot234 2 days ago | parent [-]

> The idea that someone rich would “work less and thus produce less value to the society if their marginal tax rate was non-zero” isn't “fairly general” it's straight Randian and it's not how the world works.

People generally tend to work in exchange for money, and the more money they earn thereby, the more effort they'll want to put in their work. (This broad idea is sometimes known as "efficiency wages"; it often leads to paying workers more than they could directly compete for on the market!) Some independently rich folks may obviously choose not to work in any high-paid job at all, but given that they are, it makes sense to ask what motivates them.

> Same for the idea that individual income reflect the value they create to society.

That's obviously not true, since positive externalities, negative externalities and pure transfer rents all exist. Some people might well end up creating more value to society than their income accounts for, others less.

(I actually stated above that the zero-taxes-on-capital result is somewhat unrealistic on its own and there are arguments that do push the other way, so the current notion of what should be taxed may in fact be roughly adaptive. In practice, it's often more important not to push too far away from optimality with punitive levels of taxation than to precisely match the outcome of any given theoretical model.)

	▲	littlestymaar 2 days ago \| parent [-]
		> People generally tend to work in exchange for money, When they need it. Healthy retired people regularly do work for free in various charities and community work. Working people also don't usually seek to maximize their income, but balance it with plenty of factors. > and the more money they earn thereby, the more effort they'll want to put in their work. (This broad idea is sometimes known as "efficiency wages"; it often leads to paying workers more than they could directly compete for on the market!) This only works up to a point, you can't pay a taxi driver a million bucks in the hope of getting to destination 10 000 times faster. People do work better and harder when they feel they are fairly compensated vs when they feel they are being abused but that's it. > Some independently rich folks may obviously choose not to work in any high-paid job at all, but given that they are, it makes sense to ask what motivates them. And the answer is not the income proper, but everything that comes with such jobs and income, particularly “I'm making more money than Bob”. As long as Bob and him are being taxed similarly, then the actual amount makes little difference. As I said above the marginal utility of money converges to zero the more money you have: a million dollar would change the life of the median US worker but wouldn't even be noticed by Tim Cook. (And even a billion doesn't change Jeff Bezos perception of worth an inch). > In practice, it's often more important not to push too far away from optimality with punitive levels of taxation than to precisely match the outcome of any given theoretical mode The concept of “punitive taxation” is in itself a political one, and again I can build a model in which the optimal income taxation is 100% above 1M and then say “we shouldn't push too far from the optimal” and that would be equally nonsense.