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It's not true. Skype comes from Sweden which has a famously high top tax rate. The experiment is being done everywhere, everyday, in all 193 countries, and I don't think we should measure the success of a society by the technical innovation it produces.

Further, you don't need a high tax rate. Slovakia is currently the country with the least wealth disparity and is a happy, healthy EU country with a U.S.* / European-like tax rate. The individual income tax rate in Slovakia is a flat 19%.

I don't think anyone is talking about "punish the winners" but about providing true equal opportunity. No one is talking about making everyone finish at the same point, but truly having the same starting line. What Slovakia and the rest of Europe get for their taxes includes universal healthcare and a free (or very low cost) university system -- and those two things alone can go a long way toward a more equitable, and happier, society.

* U.S. tax rates appear lower but when you combine federal, state, local and property taxes, it is similar to most European nations.

4 comments

Bad example. Though Skype's founders were from Sweden, the company was based in Luxembourg, largely for tax reasons:

http://www.luxembourgforict.lu/en/success-stories/skype/inde...

And while I agree entirely that equality of opportunity is the right sort to aim for, the article we're commenting on was in fact advocating not merely equality of opportunity, but equality of result.

Yeah, bad example. But it really doesn't change the point. Companies skirt out of the US for tax reasons too. Did innovation happen in Sweden? Yes. Is Sweden suffering from the loss of rich people who don't want high taxes. Not at all. It's a richer country than America, for starters, the range of social services is amazing, you can walk home at 2am and not be afraid, etc.

And I disagree about the article. Think about it: most people are roughly the same. If they really have similar starting points, they'll generally have similar ending points. Again, Slovakia doesn't "soak the rich". It's about providing the mechanisms to avoid the rich getting richer and poor getting poorer. It's about providing the tools for true economic and social mobility. That used to be the American dream; now it's only a dream since the reality is quite different.

It doesn't change your claim, but it now means you're down from 1 to 0 pieces of evidence for it. If people start lots of startups in Sweden despite the high taxes, what are they?

I don't think most people are the same. And that is a topic I know a lot about, since I am in the business of trying to identify the exceptional ones. I think the distribution of ambition follows a power law, like the distribution of any talent. So if you give people equal opportunity, you'll have a power law distribution of wealth.

Ah, but in a way it was a great example, because while the innovation still happened in Sweden (regardless of the tax base now), it was real innovation, disruptive and tectonic shifting. Whereas 99% of the stuff that comes out of the valley is cotton candy that wouldn't be missed if it went away tomorrow. There it's about "make something people want," not "make something people need."

In fact, it's a bit like the film industry. Yes, most films in the cinemas of the world are American films. And most of these are fun amusement despite being idiotic. But I wouldn't make the statement that the fact that "Angels & Demons" is an American film is an indicator that America is on the right track, and that's exactly what you seem to be saying: Twitter and Facebook are American companies, so America is on the right track. I know you're a Web 2.0 VC, and you see the world through such goggles, but I don't think it's a standard indicator of a functional, healthy society.

As for your second statement, sure, Bratislava has its millionaires. Wealth distribution is always power law to some extent (but not because of people, but because certain talent aspects are always more heavily rewarded depending on the culture, time period, etc). What I'm talking about is exacerbating that. A good example is the Ivy League system, which takes very bright kids and very rich kids and mixes them up and gives them both the same degree. Again, it's about mechanisms that make the rich richer and poor poorer and eliminating those to whatever degree possible.

I'm curious. What "disruptive and tectonic shifting" developments have come out of Sweden?

Skype

IKEA.

And if you don't think it was disruptive and tectonic shifting, you're kidding yourself.

> you can walk home at 2am and not be afraid, etc.

As can the vast majority of Americans.

And, you're ignoring the parts of sweden where "certain folks" can't even visit.

> Again, Slovakia doesn't "soak the rich".

The US equality advocates argue against flat taxes like Slovakia's. They argue for "soak the rich".

Perhaps their efforts are actually contributing to inequality....

There are no "bad" parts of Bratislava. There are massive "bad" parts of the Bay Area. There are even larger "bad" parts of Rio. The more bifurcated the wealth, the more you have the gated communities and the unwashed masses.

About the flat tax, that is definitely interesting. I think most tax systems are horribly broken. Buffet recently complained that he paid less in taxes than his housecleaner. I think he's a great man for saying that, and it's truly atrocious. Something has to be done.

> There are massive "bad" parts of the Bay Area.

Actually, they're not as big as you might think. The problem is that outsiders can't tell the difference between bad and poor.

There's a rather interesting "crime map" of Chicago that shows that violent crime is incredibly concentrated. (An interesting fraction of the total murders occurred within the equivalent of a couple of blocks) In other words, "bad areas" are mostly just poor.

Buffet lobbies for a tax that puts money in his pocket. He's arranged so his estate will not pay that tax.

He also lobbies for accounting changes that make companies that rely on stock options seem less attractive to investors.

No one is stopping him from paying more tax....

Buffet strikes me as a pull-up-the-rope-behind-him kind of guy.

Outsiders? I'm from northern California and lived and worked for years in Oakland. Maybe it wasn't as bad as we thought, but there were definitely areas that you "knew" not be in after dark.

And there are no such places in Bratislava. There is essentially no violent crime. There's no fear. It's a big difference, and every American I know who has moved to Europe talks about the difference.

> Outsiders? I'm from northern California and lived and worked for years in Oakland. Maybe it wasn't as bad as we thought, but there were definitely areas that you "knew" not be in after dark.

Yes, outsiders. Let me guess, you lived in a nice area of Oakland. What makes you think that you know anything useful about the poor areas of Oakland? (I lived in them when I was a kid.)

There's also "bad for whom?"

The basic problem in Rio is that the lower classes reproduce at a far greater rate than the middle class. Every year, the Favelas grow larger and larger, and the habitable areas shrink ever smaller. What kind of policy would you recommend to fix this? Is it the responsibility of the middle and upper classes to support the fertility of the lower classes?

As for Buffet, who do you think will spend $50 billion in a more socially productive way: United States Government or the Bill and Melinda Gates foundation?

What are the bad parts of the bay area? It's probably the biggest metro area with the fewest and smallest bad parts in the country.

There's Richmond, Hunter's Point / Bayview, West Oakland, parts of Hayward and... ?

People talk about punishing the winners all the time. The UK is considering a new tax for people making more than X. Pundits are starting to say "we don't need those malcontents who move away from high taxes"

In the US, half the election was about "families making less than $200K a year will not get a tax increase".

> People talk about punishing the winners all the time.

This is because the "winners" are overwhelmingly well-connected, often sociopathic financiers and management types rather than technological innovators. Even in the case of the latter, I would argue that no one has ever personally created a billion dollars' worth of value, perhaps with the exception of certain great inventors (many of whom, such as Nikola Tesla and Philo Farnsworth, died penniless.) Thus, just about every great fortune is a result of the workers not owning the means of production. It was the company's employees who generated most of the value, and yet the profit largely ends up in a handful of pockets.

Most wealth is in the hands of MBA/frat boy types, and well deserves to be weighed down with draconian taxes. It is a shame that there is anywhere for these parasites to flee to.

I simply disagree with PG, in that I do not believe that most wealth inequality is explained by differences in actual productivity. In every society I know of, the wealthiest people are largely the least productive in any real sense - they obtain wealth by skimming the output of others.

The outliers at the extreme top are bad examples.

According to the government and my tax rate, I'm a winner. Most people I know that went to grad school are winners. As an example, the income cutoff for being unable to deduct interest on student loans is ~$140K for a joint filing.

So the only way you can deduct your interest from your student loans is if you didn't actually do well in applying your education and getting a well paying job. I.e. punish the winners.

This example isn't about billionaires. It's about people that make only a small amount more than the median salary. They're punished like this all the time, and it's bad for society.

[note: if you don't get paid well because you are a struggling musician, or social worker, my analogy of using your college degree well is not relevant. It's a careerist analogy]

"It's not true. Skype comes from Sweden which has a famously high top tax rate."

Skype was written by three programmers from Estonia-- a country with a flat-tax and much less economic equality.

http://en.wikipedia.org/wiki/Skype

The core technology comes from there but the funding comes from Sweden. Let me see if I can wrap up the argument:

Paul's argument, if I understand it, is that innovation is critical. To get it, we need to reward those who chase it, and socialistic systems with their concomitant heavily graduated tax systems don't give the necessary incentives for that to happen.

My argument: I can't imagine someone saying, "I'm not interested in innovating because if I get rich, I'll have to pay 10% more in that upper bracket to do things like make sure I don't step over the destitute and crazy on my way to lunch."

Estonia has less economic equality than Sweden, but much more than America. Switzerland has tremendous economic equality; it's contribution: the web. Finland: Linux. I could go on.

America has a great spirit of innovation and entrepreneurialism. But if to get that you have to sacrifice healthcare and education, it's not worth it.

U.S. tax rates appear lower but when you combine federal, state, local and property taxes, it is similar to most European nations.

I'm interested in this - do you have any numbers to back this up?