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Comment by lutorm | Hacker News Reader

What is it they say, "money rolls uphill"?

It's very true that when you don't have funds to make financial investments that pay off over time you end up even deeper.

I guess this is why I think progressive taxation is "fair", people with higher incomes can leverage it so it makes more difference than the apparent income difference would indicate.

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This is exactly the arguement I make when people tell me that progressive taxation is some sort of evil and "fair" is when everyone just pays a fixed percent. I usually say "money has its own economies of scale" and a progressive tax is just a way to address these. "Money rolls uphill" is a nice way of saying that. I hadn't heard that before. I think maybe I'll borrow that. Thanks.

Rich people pay more taxes if you have a flat tax rate too.

How do you know how much progressiveness you need to counteract the vague phenomenon you describe? How can you be sure a mere proportionate increase wouldn't be enough to do it? Or even less?

The unfortunate answer is trial and error. If we agree that money does have an economy of scale but that its very difficult to measure, ignoring it because we can't measure it isn't much of a solution. The idea is that money has a decreasing marginal utility as well as a "money makes money" economy of scale. A subtle and well tuned progressive tax would keep the tax (although small) from overwhelming the poor who are right on the edge and also ask more from those who can afford it the most while still not overly dampening their incentives to achieve. Like Terry Pratchet so succinctly said "its the difference between using a feather and using a chicken".

Tax rates are determined by something like trial and error now, but the test is not whether they produce equality, but simply how much you can extract from each group without causing social disasters. You can take away about half the money rich people make before you start to break your economy, but if you took half the money poor people made, they wouldn't have enough left to live. Hence you get progressive taxation.

Look at the wealth accumulation with time of people with different incomes. I bet you that someone who makes $80k/yr will accumulate a whole lot more wealth with time than someone who makes $40k/yr (~ median income in US), and compare to those that make $14k/yr (what you make in a year of full-time work at minimum wage). That should tell you what the ROI of money made at various income levels is.

Cost-of-living varies greatly, and in some areas 80K/year may really not be different than 40k/year elsewhere.

Unfortunately, what I have come to realize is that it is getting harder and harder to be under a certain threshold, and in a large part that is driven by the outrageous health care/insurance costs in the U.S..

It tells you that if that's your hypothesis. If you think rich people are smarter, it tells you that not only do they make more money, but they're more responsible about saving it, too. So even though Mr. $80K has to buy a nice car and a couple suits, and Mr. $40K doesn't, Mr. $80K still spends less on liquor and lotto tickets.

It tells me what if what's my hypothesis?

I really dislike when people use the word "smart" or "intelligent" in these situations, because it makes it sound like "intelligence" is innate, like a genetic trait. Even people's IQ scores are not genetically determined, and an even more amorphous trait like "ability to amass monetary wealth" probably has a lot more to do with skills you acquire during your upbringing than with genetics.

So if you want to say that rich people are better at gathering wealth, sure. That does not imply that the poor people, if they had been swapped at birth, could have acquired the same skills from the same situation.

Don't get distracted with the intelligence thing. His point is simply that you can't tell how much of the growth in people's fortunes is due to money rolling uphill, because it's probably not the only factor.

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