If your income is from capital,whether you pay 90% taxe rate or 10%, you will always try to maximize returns. We should be rewarding labor with lower tax rates on labor, but we reward capital, which often times benefits a person who did not earn that capital.

Ding, ding, ding... bravo, sir; you are absolutely correct. Therein lies the fault in our current tax system. :)

Economic productivity is the ratio of outputs to inputs. A measure of efficiency.

Income for households and individuals is accumulation of wealth (typically standardized to currency) over a fixed unit of time. It is a rate with no clear implication to efficiency....a wealthy individual may well choose low efficiency income generation strategies to reduce economic risks (like my grandfather clipping bond coupons).

CRS-13 Double posts are not uncommon around these parts...causes are often unclear...when in doubt, wait.

Sorry, it definitely IS "the natural order of things"!! No "construct" involved.

Basically, the marketplace rewards talent and skill, usually pretty much in direct proportion to their relative scarcity.

Apparently, acting skill, athletic prowess, and couturier skills are far less abundant in the world than is the ability to turn a stick of ash into a bat on a lathe, or the ability to stitch up the fabric that the couturier designed.

Same thing with 'mothering' (nurturing). it may be the single most important skill in the world, but almost every woman possesses it.

I'm not claiming that it's 'fair', only that it's the way the marketplace works.

There is. Would you want your job to be dependent on the votes of thousands of people you don't know every two years?

You say that as though it were the natural order of things, not a construct. In Hollywood and in Sports, it's the Actors and Athletes (i.e., labor) that command the highest wages, while the writers (engineers), crew (technicians), and coaches and directors (management) make less. Of course the Producers/owners (investors) get their cut, unless the enterprise tanks, so they're paid for risk.

Of course, that varies by industry, so for instance in the fashion industry, the designers and retailers get the big bucks while the laborers who actually make the clothes get dirt. In tech industries, the investors are the only folks likely to see any big bucks, which is why profit-sharing and stock options are rampant in Silicon Valley.

The point is, you're conflating 'productivity' with 'market value'.

In some industries, the two are synonymous, in others, not so much. Soldiers, for instance, make the same base rate of pay regardless of 'production', and depend on (sometimes arbitrary) promotions to advance their rate of pay. Still, an Army Colonel makes a little less than a mid-level corporate exec or entry level Goldman Sachs employee.

If we actually paid everyone strictly according to productivity, an average mother of three would be pulling down an income several times as much as Sean Hannity's.

Incomes are (and always will be, if competition exists in the marketplace), tied (equated) to productivity. However, when productivity increases due to electronic data processing, technology, automation, etc, the increased income goes to the engineers, the technicians, and the investors, not to the clerk or the laborer.

Twenty yrs ago, the guy who tightened the lugnuts on each new vehicle coming off the GM production line, earned $50/hr plus massive benefits. Now the lugnuts are tightened by a $250K robot, the lugnut guy is flipping burgers at Ronald's house, and the extra productivity income is going to the engineers, the technicians and the guy who invested the $250K

The republicans have made it a constant case that the problem is on the supply side (thus the label of "supply side economics"), that they need to do everything possible to boost business's ability to supply goods and services so that it can meet public demand. Boost the supply and the public will buy more because the demand is there. Tax cuts for the wealthy and corporations could conceivably help in such an endeavor by freeing up more capital to spend on production.

However, it seems that most available evidence suggests that the problem lies in the demand part of the equation. Because the vast majority of people in the country have a (for practical purposes) limited amount of money to spend on goods and services, the demand is effectively limited to that level. At a certain point, adding money to the suppliers will not help, and may actually hurt the economy, as having excessive inventory is detrimental to business, and the only way to reduce inventory when demand is limited by available money is to lower the price of the product so that more may be purchased with the same amount, which is problematic for the company as well. The result ends up being that the suppliers sit on the extra capital while continuing to produce the amount that best fits the available demand. We've seen exactly this happening in the past decade or so, as people at the top accrue more and more money while everyone else stagnates. Rather than giving the producers more money to increase their supply, it would seem far more logical to increase the amount of money available to the consumers to increase their demand. Businesses that are already profitable are far more apt to increase production due to an increase in demand than due to a further influx of capital. If taxes are the only means of adjusting such things (which isn't the case, but we'll say it is for the sake of argument), reducing the burden on lower and middle income consumers would seem to make far more sense than lowering rates for corporations and top earners.

Now, I would greatly appreciate if any people here with actual knowledge of economics could weigh in and correct me where I'm wrong.

That used to be true, when incomes were pegged to productivity. But industry compensated (i.e. 'cheated') by pegging lower-lever incomes to hours worked instead.

As a result, even if a worker manages to produce twice as much as he did a year earlier, if he's working the same hours he's making the same money.

The only difference a worker today would see in his per-hour paycheck is if the deductions taken out of his pay for SS, medicare, workers comp, etc. were to either rise or fall.

This is how big business was finally able to separate ordinary laborers from the Left, and turn their ire towards government - from their perspective, they could actually work more and end up making less if their paycheck deductions simultaneously rise.

The only way to re-balance this equation would be to eliminate paycheck 'contributions' toward social programs entirely, putting the onus back on the shoulders of employers, where it belongs.

Well that's easy, if you're at the bottom rung. Computer technology boosted individual productivity immensely during the '90's, but incomes barely rose for, say, legal secretaries, whose work load and hours increased without any comparative increase in income. Indeed, by many estimates, income levels actually fell for those in the bottom half. And all that productivity boost cost jobs in the long run, as law firms (for instance) needed fewer secretaries to accomplish the same tasks.

How can you avoid "conflating" (I would use 'equating') income and productivity? A person's income (from labor) is the dollar value in the marketplace of whatever that person is producing. They are one and the same, by definition.

How can you avoid "conflating" (I would use 'equating') income and productivity? A person's income (from labor) is the dollar value in the marketplace of whatever that person is producing. They are one and the same, by definition.

That's a good reply.

I'm on board with paragraphs 1, 2 and 3.

I have a real problem with the notion of conducting a conclusive Grand Experiment on optimal tax rates. Economies are complex with multiple interactions. Experiments work well on reproducible systems where you can artificially manipulate all the variables in order to partition system variance among specific variables, variable interactions (lots and lots) and just plain dumb luck (residual error). Once you get past 3 or 4 variables (including higher order variables and interactions) it is more like a demonstration, not an experiment. It's not feasible:practical:affordable to manipulate economies in such a systematic fashion: not even in N. Korea.

I think it's more reasonable to think of tax rates as an empirical control system...sort of like piloting high performance airplanes in the days before high speed computers. As the old aviation engineers used to say, you can fly nearly anything if you have enough engine, powerful enough control surfaces, quick enough reflexes and a fast enough learning curve.

Tax rates are not so much a problem of control, they are a problem of how many fly business class, how many fly coach, and how many folks stand to lose their luggage in order to make business class more opulent.

Once you increase the tax rate from 0% to some experimentally determined high point, any further increases in rates tend to lower tax revenues because people aren't going to work if they have to pay most of the money to the tax man.

Any sensible person will realize that there is no way to calculate this, and given different attitudes to paying taxes and work ethic, it will vary from person to person, and country to country.

Thus a grand experiment needs to be run, and given that the Laffer curve has been the intellectual underpinning of the very rich to justify them paying lower taxes, and the fact that they can buy our politicians, the U.S. and many states have been generating this data.

The data has spoken, the peak revenue point for tax rates is well above where tax rates are today, and, given that tax revenues fell when Reagan cut rates in 1981 even with a recovering economy, it is pretty safe to say that the rates in the late 1970s were below the peak revenue point.

Thus, instead of lowering rates, we should be raising them significantly, and spending the money on lowering the debt and reorganizing health care to cut the 20% headwind to our economy we pay for sub standard healthcare providers.

I think you are conflating income and productivity.

Yeah, but Reagan’s tax increases in 1982, 1983, 1984 and 1987 boosted revenue by $137 billion.

Plus the population grew and inflation was a real thing back then.

A Treasury Department study on the impact of tax bills since 1940, first released in 2006 and later updated, found that the 1981 tax cut reduced revenues by $208 billion in its first four years. (These figures are rendered in constant 2012 dollars.) The tax reform act of 1986, which was designed to be revenue neutral, reduced revenues by almost $1 billion four years after enactment.

I'm sorry - if a voting population can't vote for their own financial benefit and fixate on mindless drivel thrown to them then, while democracy is the best system, it still sucks.

BIG LIE!! The facts are that gov't revenue increased EVERY YEAR immediately following the Reagan tax cuts. The budget deficits and increases in the nat'l debt happened because the Dem congress raised defense spending while refusing to cut welfare spending, NOT because gov't revenue declined.

However, it is true that all tax cut are pretty much "tax cuts for the rich", because under our income tax schedule, poor people do not contribute. The bottom 50% of American taxpayers contribute a whisker over 2% of all the income taxes collected, meaning the "rich" pay almost 98% of income taxes.

The ideal solution ought to be to tax the productive people less and quit wasting so much of what we collect policing the world.

It's back. Another GOP tax cut most beneficial to the upper classes, another unlikely and incorrect political pitch that the cuts will lead to growth to cover the obvious deficit in tax revenues.

And...

What are we supposed to do about it? Who is this argument supposed to convince to change their minds, or their votes?

Not to be too negative, I do appreciate the value of rallying the troops and keeping the truth in sight during a debate. But I am also concerned that erudite and mathematical arguments seem never to translate into effective counter-campaigning. Or is that why Gore won in 2000, after Clinton raised taxes, lowered the deficit, and spurred prosperity? Is that why Clinton won in 2016, after Obama raised some taxes, lowered the deficit, and spurred prosperity?