I'm simply reacting to the idea that you put forward that the self-employed (and particularly musicians) should not have a salary cap in case they had a "once-in-a-lifetime hit". Why on earth do you operate under the belief that someone naturally deserves to be paid for their entire life for a once-in-a-lifetime hit?
Let's say they have a working life of 40 years. First decade, they earn 10K a year. Then they have a hit that makes £1M in a year. Then they have 29 more years averaging 20K a year. Total: £1680K.
Suppose we institute an earning cap at 200K. We just halved their lifetime earnings.
Compare with a job-for-life steady earner whose income grows from 10K a year to 40K a year over the same 40 year period; they earn £1M, and never get within spitting distance of the cap.
Progressive income tax doesn't really have this problem because it's progressive. A hard income cap, on the other hand, is regressive.
They also provide an incentive for tax avoidance. I am a writer; the job isn't scalable, I can't hire people to work for me at what I do. Imposing a cap on income would, however, give me an incentive to form a limited company and hire minimum-wage workers to sit around doing nothing, while using some elaborate shareholding scheme to avoid tax by shovelling the company profits offshore or something. Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.
A salary cap ... is a bit different. (Implication: you can hit the cap on what an employer pays you, but if they're okay with you moonlighting for someone else you can work more.) It's still a crude control, though -- I'd much rather see an hourly wage ratio cap, whereby the highest-paid employee in an organization can earn no more than a fixed multiple of the lowest paid employee's wages. (CEO wants a rise? Janitor has to get one first ...)
And I have no problem whatsoever with progressive income tax all the way up to 99% in the highest bracket.
Now actually, I think an income cap is too crude a measure myself so I guess for most of this we're actually not in disagreement. Progressive taxations system (rather than the one we have now which is when all is taken into account regressive), linking lowest paid with highest paid, all great ideas.
My comments were not really to be super supportive of high level cap on income but to be in opposition to the idea of making exceptions in a taxation system for those who are self-employed or who have uncertain or uneven incomes.
A hard income cap, on the other hand, is regressive.
Technically it's not. A taxation system is regressive if the proportion of tax paid on income goes down (or stays the same -- in mathematical terms monotonically non-decreasing) as income goes up but this is only considered within a single income year. The hard income cap is a progressive tax system in the technical sense. I don't think it would be possible to have a tax system which charged tax yearly but was progressive over a lifetime (apart from systems which simply refunded you lots). Anyway, that's a technical quibble which I'm afraid is the sort of thing I'm unable to resist.
We just halved their lifetime earnings.
Which seems harsh but if we took someone who left school and immediately went into a well paying job which was taxed in the 40-50% band for most of their income -- we just almost halved their lifetime earnings too.
But look, actually, I wouldn't argue an income cap was the best way of dealing with these things myself. A progressive income tax rising as you suggested would be much more what I would consider reasonable. But surely that has the same issues that you considered. If top incomes are charged 99% then someone with a very good year for earnings and lots of poor years for earnings suffers more than someone who constantly earns well.
Imposing a cap on income would, however, give me an incentive to form a limited company ... Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.
Well, this is pretty much where we came in as far as this argument goes. When they were paying 95% income in the 60s the Beatles wrote the song Taxman (one for you nineteen for me) about how unjust they thought it was, partly on the assumption that they might have only a short career of earning that level of money.
Any system which taxes the super-wealthy (until their pips squeak -- lovely phrase) has the risk of them going elsewhere with a more favourable tax system (hence Monaco). And you're right, it is "nonsense on stilts". A kind of ghastly "prisoner's dilemma" where a country which wants to impose a high taxation on the wealthy is vulnerable to another country saying "oh, come and live here, we charge you nothing and we're stacked full of yachts and casinos".
![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
andrewducker) wrote2012-02-09 01:22 pm
no subject
Let's say they have a working life of 40 years. First decade, they earn 10K a year. Then they have a hit that makes £1M in a year. Then they have 29 more years averaging 20K a year. Total: £1680K.
Suppose we institute an earning cap at 200K. We just halved their lifetime earnings.
Compare with a job-for-life steady earner whose income grows from 10K a year to 40K a year over the same 40 year period; they earn £1M, and never get within spitting distance of the cap.
Progressive income tax doesn't really have this problem because it's progressive. A hard income cap, on the other hand, is regressive.
They also provide an incentive for tax avoidance. I am a writer; the job isn't scalable, I can't hire people to work for me at what I do. Imposing a cap on income would, however, give me an incentive to form a limited company and hire minimum-wage workers to sit around doing nothing, while using some elaborate shareholding scheme to avoid tax by shovelling the company profits offshore or something. Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.
A salary cap ... is a bit different. (Implication: you can hit the cap on what an employer pays you, but if they're okay with you moonlighting for someone else you can work more.) It's still a crude control, though -- I'd much rather see an hourly wage ratio cap, whereby the highest-paid employee in an organization can earn no more than a fixed multiple of the lowest paid employee's wages. (CEO wants a rise? Janitor has to get one first ...)
And I have no problem whatsoever with progressive income tax all the way up to 99% in the highest bracket.
no subject
My comments were not really to be super supportive of high level cap on income but to be in opposition to the idea of making exceptions in a taxation system for those who are self-employed or who have uncertain or uneven incomes.
A hard income cap, on the other hand, is regressive.
Technically it's not. A taxation system is regressive if the proportion of tax paid on income goes down (or stays the same -- in mathematical terms monotonically non-decreasing) as income goes up but this is only considered within a single income year. The hard income cap is a progressive tax system in the technical sense. I don't think it would be possible to have a tax system which charged tax yearly but was progressive over a lifetime (apart from systems which simply refunded you lots). Anyway, that's a technical quibble which I'm afraid is the sort of thing I'm unable to resist.
We just halved their lifetime earnings.
Which seems harsh but if we took someone who left school and immediately went into a well paying job which was taxed in the 40-50% band for most of their income -- we just almost halved their lifetime earnings too.
But look, actually, I wouldn't argue an income cap was the best way of dealing with these things myself. A progressive income tax rising as you suggested would be much more what I would consider reasonable. But surely that has the same issues that you considered. If top incomes are charged 99% then someone with a very good year for earnings and lots of poor years for earnings suffers more than someone who constantly earns well.
Imposing a cap on income would, however, give me an incentive to form a limited company ... Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.
Well, this is pretty much where we came in as far as this argument goes. When they were paying 95% income in the 60s the Beatles wrote the song Taxman (one for you nineteen for me) about how unjust they thought it was, partly on the assumption that they might have only a short career of earning that level of money.
Any system which taxes the super-wealthy (until their pips squeak -- lovely phrase) has the risk of them going elsewhere with a more favourable tax system (hence Monaco). And you're right, it is "nonsense on stilts". A kind of ghastly "prisoner's dilemma" where a country which wants to impose a high taxation on the wealthy is vulnerable to another country saying "oh, come and live here, we charge you nothing and we're stacked full of yachts and casinos".