The Case for a Maximum Income

François Hollande’s new proposed 75 percent tax bracket on income over $1.23 million sounds like a ridiculously good, if slightly freedom-curtailing idea. But before you balk at the thought: trust me, there's a reasonable case to be made for it. And Hamilton Nolan makes it:

Let's have a maximum annual income of, oh, $5 million, pegged to inflation. All income above that would be taxed at 99 percent. Our precious national sports stars, celebrities, and corporate executives could still be fabulously wealthy. The daydreaming poor could still have a nice big number about which to hopelessly dream. Five million dollars a year. Five million! Anyone with $5 million can invest it conservatively enough to earn 5 percent a year and still be making $250K per year without lifting a finger. In other words, $5 million provides you with the means to live as a member of the one percent without ever touching the principal. It's everything that any reasonable person could ask for, financially speaking.

Dylan Matthews points out the obvious economic problem with such a policy:

If you have a maximum income that includes income from investments, there’s very little reason for people to save money in places they think are going to get a high return. The result is that good projects that would yield a lot of dividends are underfunded, because the extra gains realized would just get grabbed by the government anyway. If good projects aren’t getting funded, the consequences for growth – not just for the rich but for everybody – are pretty grave. Again, it’s worth emphasizing that the U.S. could probably survive with top tax rates much, much closer to 100 percent than we are today. But it’s hard to see what purpose a maximum income serves. The rich would leave, the rest would suffer lower growth and no redistribution would take place.

Derek Thompson concurs:

We don't know what would happen if we applied a top marginal rate of 100% because something like this has never been tried in an advanced economy that I'm aware of. But for the super-rich, it certainly sends a clear message: Don't work so hard. And if you want to work hard, do it some place else.