Anyone putting their time and/or money to work on a risky enterprise where the expected value is negative - which includes most startup founders and angel investors.
What we do for a living doesn't seem rational - typically, we get back far less than what we put in, especially if you consider opportunity costs. But yet we still do it.
Why do we do this? Entrepreneurs don't strike me as irrational - as a group, I'd consider us more rational than average. Instead of dismissing risk-takers as nuts, you should listen to what our behavior is loudly telling you - our utility curve isn't concave, it's convex. Risk-taking behavior in the face of negative odds only makes economic sense if marginal utility of income increases, not decreases, with income.
You know, it's not only entrepreneurs whose actions shout "hey, diminishing marginal utility of income isn't valid." Anyone who buys a lottery ticket does it too. People aren't stupid. Everyone knows they're on average only getting back a fraction of the money they put into a lottery. What their actions actually tell you is "hey, I value the incredibly small chance of getting rich so highly that I'm happily taking what would otherwise be considered a sucker's bet."
If you really want to maximize utility in the tax code, you'd have to have all of those who behave in risk-adverse ways (with concave utility curves) subsidizing all of those who behave in risk-loving way (with convex utility curves). Which goes a fair bit beyond 'tax deductions'.
Honestly, the way people actually behave makes me think diminishing marginal utility of income is completely questionable - instead, many of us believe and behave like there's an increasing marginal utility of income.
But enough about economics - the argument we're having really hinges on the definition of concepts like 'fairness' and 'justice', which is what you should've started with, not some utility curve argument that's only tangentially relevant. No matter what the utility curve looks like, progressive taxation is repugnant because it's neither fair nor just. It clearly violates the principle of equality before the law - even though all men are created equal, progressive taxation makes the property rights of the wealthy less important than the property rights of the poor. If taxes are a necessary evil, and I suspect they are, they should be proportional, not progressive.
>Anyone putting their time and/or money to work on a risky enterprise where the expected value is negative
That's crap. If the expected value is negative, then it's irrational – clearly there is some outcome with a positive ROI. VCs don't act out of the goodness of their heart.
>you'd have to have all of those who behave in risk-adverse ways (with concave utility curves) subsidizing all of those who behave in risk-loving way (with convex utility curves). Which goes a fair bit beyond 'tax deductions'.
Are you familiar with the capital gain tax? It looks like we already do subsidize risk takers.
> the argument we're having really hinges on the definition of concepts like 'fairness' and 'justice' (...) progressive taxation is repugnant because it's neither fair nor just. It clearly violates the principle of equality before the law - even though all men are created equal, progressive taxation makes the property rights of the wealthy less important than the property rights of the poor. If taxes are a necessary evil, and I suspect they are, they should be proportional, not progressive.
This is a red herring. I'm confused as to how we are supposed to discuss economic policy without resorting to using economics.
I am in complete agreement that taxation needs to be proportional. I just think that they should be proportional to real purchasing power, instead of being proportional to income.
>Risk-taking behavior in the face of negative odds only makes economic sense if marginal utility of income increases, not decreases, with income.
You seem to be intent on misrepresenting it the concept of marginal utility. Making more money will always increase your utility; it just does so at a smaller rate.
If you have a yearly income of $20,000 a $1,000 raise is going to make a much more significant difference in your life than if you make $80,000. If it costs a minimum of $10,000 a year to clothe and feed yourself, a 10% flat tax is going to affect someone who is poor a lot more than it is going to affect someone who isn't.
This is what is unfair.
> the way people actually behave makes me think diminishing marginal utility of income is completely questionable
You've yet to present an argument against this idea. Casting it aside because it is ideologically convenient for you does not make it untrue.
Anyone putting their time and/or money to work on a risky enterprise where the expected value is negative - which includes most startup founders and angel investors.
What we do for a living doesn't seem rational - typically, we get back far less than what we put in, especially if you consider opportunity costs. But yet we still do it.
Why do we do this? Entrepreneurs don't strike me as irrational - as a group, I'd consider us more rational than average. Instead of dismissing risk-takers as nuts, you should listen to what our behavior is loudly telling you - our utility curve isn't concave, it's convex. Risk-taking behavior in the face of negative odds only makes economic sense if marginal utility of income increases, not decreases, with income.
You know, it's not only entrepreneurs whose actions shout "hey, diminishing marginal utility of income isn't valid." Anyone who buys a lottery ticket does it too. People aren't stupid. Everyone knows they're on average only getting back a fraction of the money they put into a lottery. What their actions actually tell you is "hey, I value the incredibly small chance of getting rich so highly that I'm happily taking what would otherwise be considered a sucker's bet."
If you really want to maximize utility in the tax code, you'd have to have all of those who behave in risk-adverse ways (with concave utility curves) subsidizing all of those who behave in risk-loving way (with convex utility curves). Which goes a fair bit beyond 'tax deductions'.
Honestly, the way people actually behave makes me think diminishing marginal utility of income is completely questionable - instead, many of us believe and behave like there's an increasing marginal utility of income.
But enough about economics - the argument we're having really hinges on the definition of concepts like 'fairness' and 'justice', which is what you should've started with, not some utility curve argument that's only tangentially relevant. No matter what the utility curve looks like, progressive taxation is repugnant because it's neither fair nor just. It clearly violates the principle of equality before the law - even though all men are created equal, progressive taxation makes the property rights of the wealthy less important than the property rights of the poor. If taxes are a necessary evil, and I suspect they are, they should be proportional, not progressive.