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Xinyuan Real Estate Co., Ltd. Message Board

  • rvga128 rvga128 Jun 4, 2013 8:44 PM Flag

    Taxes and growth.

    There is an old argument that cutting taxes for the rich encourages them to work harder. But the paper's authors are skeptical of that idea. If low taxes on the wealthy made them put more effort into their jobs, we'd expect the countries with the lowest taxes to grow the fastest. That hasn't happened. Instead, wealthy countries have all been growing at about the same pace for the last several decades, irrespective of their tax policies.
    Here's the alternative theory. If you cut taxes for the rich, they might not work harder, but they will become greedier for more take-home pay. When taxes were higher, a huge salary was less valuable, so maybe rich people shifted their attention to corporate expense accounts and other perks. But today, it's more worthwhile for executives, doctors, lawyers, and other professionals to bargain for the absolute highest pay package possible. In the case of CEOs whose bank accounts live and die by their company's stock performance, it's also become more important to focus on short-term returns, possibly at the expense of long-term investment.
    This is all highly speculative, of course. But it does seem to dovetail pretty well with the era of soaring CEO pay and superstar salary scales in professions like law and medicine. The world's tax codes say greed is good. And the rich appear to have gotten the message.

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