We call those a 401k. And yes, the employer can have several times matching, to a max of $37,000 . You and your employer can contribute up to $56,000 for your 401(k).
So that’s $62K. Per year.
But there’s nothing stopping a employer from also having a generous pension plan on top of that.
Of course smart people would get that, plus a cadillac medical & dental plans, HSA, etc, etc.
The company, or whoever is willing to pay the salary, obviously has more than $1 million to spend for this position. If they aren’t spending it on the salary of this one idividual, where does the money go? You claim the fact they can’t spend it on this one individual will repress economic activity. The money still exists, it is still available, so then what? Where does the company/owner/whatever move that money that it now is lost economic activity?
Except of course, things that reduce Gross Taxable income or AGI or TI.
Retirement plans, tax shelters, mortgages, etc.
You could easily get a $2M contract. Put 62K into retirements, ask the employer to reduce pay by $500k for a super generous conventional retirement plan, have tax shelters and what not and never get close to that 100% marginal tax rate. Even $3M.
Even if you get companies sitting on the cash, that cash is distributed among the shareholders, which means it is distributed among thousands of people, not just a few. Distributed wealth is better for stimulating economic growth than consolidated wealth.
A person who reaches a point where they no longer feel the need earn more is leaving money for someone else to come get. Against, it distributes the wealth more than consolidate it.
There is no obligation to pay dividends with retained earnings.
But even if dividends were paid to shareholders, that could be a significantly less positive outcome for those shareholders than hiring the right people who could maintain the value of the firm, and therefore the value of all those shares. Increased market cap is also “distributed among thousands of people, not just a few”. A company that loses cash to dividends, which should have been used to retain the right talent, could easily go out of business. A dividend paid today is small consolation for a shareholder whose stock could potentially collapse in value because it wasn’t worth the while of the people who actually knew what they were doing to remain in charge.
It’s not about money.
The creation of value is what we care about.
Money is the ruler, not what is being measured.
If a person stops working because they retain no value from what they do, then there is less work in the world, and the value that they would have otherwise created ceases to exist. Even if the first company can find a suitably competent replacement for the person who leaves – which is quite often not the case – then they could find that replacement only by pulling that person away from some other potentially valuable job, which is now just an empty chair. One less worker in the world means less valuable work being done in the world.
Two people working creates more value than one person working, not just for themselves but for each other. Two hundred million and one people working creates more value than two hundred million people working.
Almost no one consumes only what they produce themselves. Almost all of our work is done for other people. Both sides of the transaction benefit. If people stop working because the value of what they do is entirely stripped from them, then they’re not the only ones who lose as a result of that. If one side of a mutually beneficial arrangement walks away, then the other side loses, too.
I don’t think you can assume that the $1M is there already.
Think of a surgeon. He gets, say, $25K per operation. He does, on average, two operations a week. That’s a lot of work, it’s stressful, he’s on his feet a lot. But he is earning $50K a week, or $2.6M a year. Now the government says nobody can earn more than $1M a year, so it takes $1.6M. Now he is making $1M a year. That’s good money. But it is the same that he would earn if he only operated 40 times a year.
So what is his incentive to keep operating at the same pace? He doesn’t generate more income for himself.
So there isn’t really any $1.6M sitting anywhere. The surgeon has to generate it by doing surgeries, and if he doesn’t thereby increase his own income, he has that much less incentive to generate it.
People respond to incentives, usually, which means that they don’t usually work for free. And if the marginal utility of your million-and-first dollar drops to zero, you tend not to do much to try to get that million-and-first dollar.
Yes, of course. And another point is that all this effort to avoid the tax is deadweight loss to the economy, because it isn’t as productive as doing whatever it is that generated the income in the first place.
Every minute my hypothetical surgeon is spending with his tax accountant is a minute where he isn’t operating on people and earning money, including money to pay in taxes.
Hopefully your surgeon’s tax wizard has played avoidance tricks. My procedures were billed by medical groups so that’s not each sawbones’ income. My insurance does not pay the full amounts billed and my copays don’t fill the gap so each procedure is a financial loss for the group. Isn’t that how it works?
Without fighting the hypothetical, part of what happens to that $1.6M you feel the surgeon isn’t going to keep is that he could take take on a partner, setup an office with other surgeons to still collect that $1.6M. The people that want that surgery are going to find someone to do it, so that $1.6M is going to be paid to a surgeon somewhere, whether it is a single surgeon who can then get his third or fourth house or whether that is going to go to a 2nd or 3rd surgeon so they can setup their own practice and employ more people will depend on the utility the 1st surgeon sees in earning above $1M. Clearly if he gets no money at all above $1M, he has no incentive to do any work beyond that. But if his return on each dollar drops to only 30% or 20% (70% or 80% tax rate) he might consider doing the additional surgeries because so much of the overhead costs are already covered and that is just free money. Don’t forget, out of that first $1M he’ll have to pay for his house, cars, kids’ braces, etc. Whatever the government isn’t taking, his life expenses will. After he has met all those obligations, the rest is for him to play with. And even if the government is taking 70% or more of it, it is still an extra car or vacation or more to him.
People don’t work for free. Not usually. And incentives are important. Give a middle class or lower class person an extra $1k and they are going to spend it. They don’t have the luxury of trying to figure out if they should take a European or African vacation this year. Spending that money is how you create wealth. The surgeon isn’t going to create more jobs with more money. He has his staff. But more surgeons will create more jobs because they need staff and an office, too.
I hadn’t heard of that before. Thanks for pointing me towards that. Interesting reading.
I totally agree with the notion that if you raise minimum wage you will hurt employment because at some point the overhead of employing people will outweigh the benefit of their labor, so I understand that aspect to it.
I also think I see the point that just reducing the amount of work 1 person is doing won’t make more work for someone else because, again, the overhead costs make it prohibitive to hire someone else to do the work.
Let me point out that while enjoying your post (I was tempted to write somethin similar, but you expressed it way better than I ever would have been able to) I see a fundamental contradicition between what you wrote there and what your signature states.
One side-effect of such a tax policy which I don’t think has been mentioned is we’d see some massive deflation. There would be a lot less money in circulation and that would have a substantial effect on prices.