Thursday, 11 March 2010

High taxes as an incentive to work

Just a hypothesis here, suggested by Chris Dillow's reference to Baran and Sweezy:
...tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation (p108).
The essence of the market is that surplus goes to those who produce it: this is a stable situation because it gives the producer an incentive to produce more surplus. But perhaps modern economies of scale and scope lead naturally to ownership, or at least control, being concentrated in the hands of a small number of people: control can't be spread more broadly because of the rational ignorance of the crowd. Sharing a growing amount of wealth among a smaller number of people means that - as Baran and Sweezy suggest - those in control are no longer significantly incentivised by additional consumption, and may stop bothering to produce more.

Thus, the stable state which ensures continuing growth is for some of this surplus to be redistributed to those who do not own or control the means of production.

If enough of the surplus is redistributed, the capitalists are left with little enough that they do have an incentive to keep working to produce more.

In this model, high tax rates are not a disincentive to productivity but an incentive.

So: there's a blatantly counterintuitive proposal - what do you think?

3 comments:

Min said...

"The essence of the market is that surplus goes to those who produce it:"

Unlettered as I am, I was starting to get the impression that the surplus does not tend to go to the producer, neither to the worker nor the capitalist, but to the landlord. Hence the term, "rent".

I have gotten this impression from more than one source, but the clearest expositor is Henry George, who advocated taxing land. OC, a land tax provides an incentive to make money off of it, because the tax is there anyway.

But psychologically, the idea that high taxes are a disincentive to work, per se, has never made much sense to me. Ronald Reagan claimed that high taxes kept him from making more movies, but that was after he could afford not to. (Besides, it gave other people opportunities to make movies, which may have been a plus for society as a whole.) OTOH, if one has a monetary goal, for instance, to buy a second mansion, then high taxes should induce more work rather than less, no? I guess that the taxes are not incentives, but may amplify an existing incentive.

None of this is about redistribution, though. I am mainly interested in comments and corrections. :)

PunditusMaximus said...

The existence of trust fund babies proves your hypothesis thoroughly correct.

Min said...

I should have questioned Reagan's claim. Not that he did not believe it. I think that he did. That is, he resented the high taxes he was paying -- he might even have been in the 91% bracket --, and he may have thought, why bother? However, given the amount of money he had and how much he had worked recently, he may have made the same decision if his taxes had been lower. We do not always understand our motivations.

Lower taxes may have enabled Reagan to reach the point where he could afford not to make another movie after making fewer movies, and he may then have actually made fewer movies if his taxes had been lower.

IIRC, Mickey Spillane, author of the Mike Hammer books, said that he wrote another book when he needed the money. Higher taxes might have produced more Mike Hammer books. :)