Look, no matter how much you tax the wealthy, you always have a positive derivative -- the more money you make, the more you take home. I really can't see anyone making a rational decision to work less hard because the tax rate is too high, within reason.
The other thing that becomes blindingly clear when you live somewhere like Silicon Valley is that wealth is logarithmic. If you take home a million dollars a year here, you're still living in a 2000 sq foot home in a town with a half-decent school district. If you want a house walkable to downtown Palo Alto, you'd better be making $5 - $10 million (those homes go for $4 - 5 million). And if you want a real mansion, you'll need $20-30 mil. You want your own jet? $100 mil. There's always someone making MUCH more money than you, unless your name is Gates or Bezos. In that environment, a 3x increase in pay is still a meaningful difference in take-home.
>I really can't see anyone making a rational decision to work less hard because the tax rate is too high, within reason.
I really think people do. Two years ago I had to work 250 hours in December to get a 25k bonus. At ~40% taxation, I felt it was worth it. I probably wouldn't at 65%. That is a pretty extreme case, but well off people turn down work if it isn't lucrative enough.
Plus, if you are taxing investments, then it all matters because of risk. Tax factors into the expected value of an investment. It's not worth investing money if 70% of the proceeds get taken away. This is why world wide, capital is taxed fairly lightly.
>Yes it is. As long as the 30% of the proceeds are higher than the proceeds of the best alternative use of your money.
You aren't guaranteed proceeds. You can model investment as a probability function of profit. You should only invest when the expected value of the investing is greater than 0. But tax rates factor into the expected value.
Would you bet on a 50/50 coin flip with 3:1 odds? Of course. How about if you were taxed 90% on proceeds?
I was just in a meeting yesterday with a fund that chose not to pursue lucrative investment opportunities because the tax situation was much worse than the other opportunities available.
Tax is absolutely a huge part of the decision making for any substantial wealth management. Whether you buy property, bonds, or do something more creative is heavily influenced by the taxes you'll have to pay.
I'm generally a fan of redistribution strategies, but, it's worth noting that motivation is not just a binary function of "is the marginal value > 0".
Say I could spend 30 hrs/week running a small business at moderate efficiency, and make $100k/year in profits, or 60 hrs/week running a much larger, more efficient business for $10m/year in profits.
My motivation to put in the extra 30 hrs/week is going to depend greatly on the absolute value of the difference, after taxes. If taxes are such that I take home $90k vs $7million, I'm probably going to work the 60-hour strategy. If taxes are such that I take home $89k vs $500k, I may or may not consider that worth the extra hours.
The other thing that becomes blindingly clear when you live somewhere like Silicon Valley is that wealth is logarithmic. If you take home a million dollars a year here, you're still living in a 2000 sq foot home in a town with a half-decent school district. If you want a house walkable to downtown Palo Alto, you'd better be making $5 - $10 million (those homes go for $4 - 5 million). And if you want a real mansion, you'll need $20-30 mil. You want your own jet? $100 mil. There's always someone making MUCH more money than you, unless your name is Gates or Bezos. In that environment, a 3x increase in pay is still a meaningful difference in take-home.