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Comment by wallawe | Hacker News Reader

This is the correct answer, I don't know why you're being downvoted. This would cause people to either (a) leave the country or (b) work until they made their 395k and then stop working for the year.

It's actually quite terrifying that people would advocate for taking up to 90% of someone's income. We need to work on solving inequality but this simply isn't the answer.

Edit: It's also important to remember that taking more money away from the rich, and feeding it into an already broken and inefficient system (our government) does not equate to lifting people out of poverty.

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"It's actually quite terrifying that people would advocate for taking up to 90% of someone's income."

Interestingly, the top U.S. tax rate from 1951–1963 was >90%, and it was >50% during the half-century from 1932–1986 – https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...

And, due to deductions, literally no one paid that rate. Realized tax rate was lower, combined with a bunch of dead weight losses as people optimized for tax avoidance.

yes, very few paid the top rate. but that's the point, the excess income was being thrust back into the economy, driving innovation and creating jobs not just languishing in someone's bank account.

> thrust back into the economy

This is another variation on the "rich people hoard cash" theory, which is completely false. Rich people invest all of their money back into the economy. Even bank deposits are invested back into the economy (when the bank loans it out).

Scrooge McDuck cash vaults do not exist.

Why do tax havens exist then?

Reagan didn't get rid of all of the tax shelters. But the idea that tax havens (i.e. tax shelters) are relatively crummy investments remains.

The reason Apple, etc., invest a lot of their cash overseas is not because those are better investments, but because the US corporate taxes are so much higher those foreign investments become more attractive.

Level the taxes, and the money will be reinvested back in the US.

Media keeps telling us Apple is not investing, but hoarding cash overseas to avoid the taxation. Care to elaborate how and what they are investing in?

The media consists of people with journalism degrees, not economics. Such journalists commonly believe in the "cash hoard" theory.

To know what they are investing in, consult the Apple Annual Report, which says. Even if the balance sheet says "cash", what they mean is "bank deposits". Bank deposits get loaned out to others, and those others spend it.

Nobody borrows money in order to hoard a pile of currency.

Actually when I started worked for a bank, we got an initial talk on the financial system and how it works. It showed that most companies do reinvest most of the cash or pay it out as dividends, it was pointed out that the exception at the time was Microsoft who basally hoarded it. That was 12 years ago. Now Apple are the bigger player and seem to be doing exactly the same.

Parking money in index/hedge funds is not "investing it back in the economy". Bank lending is driven by demand, not deposits.

> Parking money in index/hedge funds is not "investing it back in the economy".

Of course it is. What do you think those funds invest in? Piles of cash?

> Bank lending is driven by demand, not deposits.

If that were true, banks wouldn't need deposits and certainly wouldn't offer free checking. They're not charities.

Buying a stock on the secondary stock market is not investing in the economy. Buy that logic, high-frequency traders are investing in the economy.

> If that were true, banks wouldn't need deposits

That doesn't follow from what I said. Banks are required by law to back their loans up with reserves. So when they don't have enough reserves, they borrow on the interbank lending market or from the central bank.

http://www.bankofengland.co.uk/publications/Documents/quarte...

> Buying a stock on the secondary stock market is not investing in the economy.

Of course it is. Buying a piece of a company is investing in it.

> Buy that logic, high-frequency traders are investing in the economy.

And they are - even if they hold a particular stock for a millisecond. The aggregate invested across the market is what matters.

It's a bit like calculus. All those infinitesimal bits add up to real amounts.

> That doesn't follow from what I said.

Maybe you can explain why banks offer free checking.

Yes, technically buying a stock makes you a part owner of that company. But if the stock is already on the secondary market, you're simply purchasing a piece of ownership from someone else that already exists. This is not an investment in the sense of directly enabling something in the real economy to happen that wouldn't have otherwise (eg. venture capital). Sure you're providing liquidity to a current shareholder, but that's a fairly marginal benefit, and selling your shares will involve taking an equivalent amount of liquidity. This is no more an "investment" in the economy than buying a second-hand home.

The original comment was implying that rich people contribute to the economy by investing their spare savings back into it. I'm not claiming that there's no benefit to buying secondary stocks and derivatives on them, just that this is not even remotely the same in terms of creating economic growth as actually investing in creating new business opportunities and such. It's kind of like saying that trust fund kids who don't work contribute to the economy by spending money. And often this "investment" in the stock market is the mere fueling of bubbles.

> Buy that logic, high-frequency traders are investing..

HF traders don't hold for long, so why are they equivalent?

"Rich people invest all of their money back into the economy" - if it really worked like that we wouldn't be discussing inequality.

not following your logic here.

"investing" != "giving it out". "growing economy" != "less inequality".

I'm curious where you think their money is.

I suspect a lot of it has been invested in overseas locations, including manufacturing operations globally. It may be that the money did indeed "trickle down", but not into the US.

I agree. If the US makes it even less attractive to invest capital here, do we think we'll get more or less capital investment and job creation here?

Yup. Investment flows to where the most returns are, and taxes loom large in such calculations. But that isn't the point here, which is it is invested, not stuffed in a mattress.

invested in siloed low risk fixed income vehicles ensuring that the funds don't circulate through the broader economy.

The reason fixed income vehicles pay out income is because those funds are spent on productive investments.

So, they do circulate through the broader economy. There's no silo of cash sitting somewhere paying dividends.

Low risk fixed income doesn't currently keep up with inflation.

Yes, it does, at least in the case of TIPS:

http://www.investopedia.com/terms/t/tips.asp

Actually, almost by definition TIPS don't, because you're taxed on the inflation adjustment.

> languishing in someone's bank account

Money in bank accounts is loaned to others and "thrust back" into the economy.

Money in other investments (stocks, bonds) also funds economic activity.

Your argument only makes sense if the wealthy are hoarding cash under their mattresses, which is not what they do.

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