Scenario #1. The individual will attempt to classify and and all wealth over $999,999 as anything other than "income" taxed at the double rate. This will effectively divert capital into unproductive endeavors.
This type of scenario leads to stagnation and posses the danger of escalating into stagflation depending on the amount of deficit spending undertaken by government.
Scenario #2. The individual will take greater risks undertaking productive enterprise and seek to classify as much income as possible as income which will lead to capital expenditures in the most productive endeavors available.
This type of scenario could lead to bubbles in a society known for alleviating moral consequences of bad investments by providing bailouts.

I'm single, self-employed, and don't have enough deductions to justify filling out a schedule A. Every dollar I earn past $50,000 or so I earn is taxed at 50%* until I get over the self-employment tax at $106,000 (which is never going to happen).

It's not worth it for me; I'd rather have the free time instead of the $10-$15/hour or so I'd make after taxes and considering all my non-billable work time. If I hit $50,000 this year (which, God willing, I just might), I will just stop working and take a vacation for the rest of the year.

*25% federal income tax, 15% self-employment tax, 10% state income tax at that income level. That's not even considering sales or property taxes, which are of course quite high here in California.

Tolstsoy, if you can afford it form an S-corp. I know its $800 a year, but it would pay for itself if you went past $50,000.
Obama, Governor Brown, and the rest of the liberal hypocrites should be ashamed of the situation they created that takes 50% of any self-employed individuals wages.
This is exactly what their rhetoric says they want to help, but their policies directly contradict their rhetoric.
The middle-class is being held down by taxes that pay for bureaucrats.
It's as if the liberals want to force people to work for corporations or the state. Anyone who is independent of the government dole represents a threat to their model.

Do you even know what stagflation is?

@TC: Your absolutely right, just 2% of American's take any entrepreneurial risks, not because 98% of them don't want to, but because a lot of them can't afford to.

If my tax rate was to go up 15% by taking risks, unless I was guarenteed to make 25+% more money it would not be worth it.

I still support a fair tax, and probably always will.

Scenario A:

Economy X produces 1000 units of unobtainium. John gets 100 and Jack gets 900. John is taxed 10 and Jack 180. Next year the economy grows - wealth is created. Hurray! An additional 200 is also produced - 20% growth rate!

Jack takes all of the 200.

Now you tell me, is it a zero sum game or not - Jack is taking 11/12 of the economy for himself. If he took 10/12, John would get 2/12 instead of 1.

Growth or no, it's a zero sum game as long as you have to share what's produced.

Keynes suggested that giving money to people who spend it on goods and services will generate increased economic activity and growth, this seems a fair assumption as approx. 75% of GDP is generated by consumer spending. The mistake that was made with bailout money is that it went straight to bank balance sheets rather than pay off consumer debt. If the bailout had gone to 'consumers' on the proviso they used it to pay off their bank debts then banks would have still got the bailout they required but personal debt would be much lower, less bankruptcies, less repossessions, less unemployment, more growth. The govts of the world got it wrong, if you want a way out of recession give poor people money to write off personal debts ....... simples !!

Another effect of raising taxes on the "wealthy." Many of the "wealthy" are small business owners who create jobs.
This paper demonstrates how-In this article, we have focused on whether
a sole proprietor’s propensity to hire labor is affected by his personal
income tax situation. Do high income tax rates discourage entrepreneurs
from taking on workers? We examine tax return data for sole proprietors
from before and after the Tax Reform Act of 1986. To the extent that
these reflect entrepreneurial behavior, we conclude that the answer is
yes—when a sole proprietor’s marginal tax rate goes up, the probability
that he or she employs labor goes down....... t taxes on high-income entrepreneurs may be shifted in part to lower-income employees, leading to counterintuitive effects on the distribution of after-tax income.

Income Taxes and Entrepreneurs’Use of Labor by Robert Carroll, United States Department of Treasury, Douglas Holtz-Eakin, Syracuse University, Mark Rider, Georgia State University, Harvey S. Rosen, Princeton University

So raise taxes, destroy jobs, and ultimately make workers worse off.

Proposal: "[Assume] that the economy is not a zero-sum system, but instead assumes that the economy is a dynamic system capable of real growth."

Conclusion: "Thus any assumed increase in wealth results from the output of productive activity, and does not diminish the wealth of anyone else at all."

If (and i think thucy hit this point) there is real growth but my productivity prevents other's from selling their labour, ie I take market share by being more efficient/cheaper or better known, then without being zero-sum my increase in wealth directly diminishes that of others.

Now If you want to guarentee that people buy from all possible sellers, you can form some kind of purchasers monopoly (not that unrealistic in the days or the internet) and have them offer quotas to the producers for how much each will produce in a given quarter.

This way market share can be evenly distributed and controlled without either government controls or damaging the productive motives.

I see this "double" figure running around and a lot of hypothetical scenarios. Did I miss the initial data, such as <$1mil tax rate (which, if known, would give the doubled tax rate)?

A non-zero-sum economy. Sounds like Dominion!

Orathaic, You sound like Obama talking about ATM machines when you post the fiction about productivity increases limiting the market for labor, when in fact the exact polar opposite is true.
Productivity increases lower costs and vastly expand the market for labor.

Take any new technology for example, say DVD players.
As I make machines that produce DVD's cheaper than previous production methods did the workers I displaced on the DVD assembly line can not find employment building the very machines that replaced them, building the new factories I need to build more DVD players because the new production methods lowered the price of DVD players and greatly expanded consumer demand for more DVD's which means more sales people to sell DVD's, more shippers to ship them and on and on.

Following your logic we would have said the automobile was a bad thing because it increased transportation productivity and put livery stables out of business in you warped zero-sum fantasy of how some imaginary world works.
It certainly has no relation to the real economic world of human beings.

Do not start your own business orathaic. You won't want to buy a computer because the productivity increase will put a typist out of work.

It's a shame so few people understand the dynamics of business.

So a quick google search showed the super rich are taxed at varying numbers <20%. Middle class is somewhere around 30-45%. So if the super rich had their tax percentage doubled after the first million, then they'd be paying somewhere around 30-45%. Unless my numbers are wrong, how is this unfair? I did ask for numbers and received none, so I am assuming my self-imposed "let me google that for you" is accurate enough.

To balance the budget:

-Revenues have to go up, taxes would need to be part of the mix, not just loophole closing, and
-Costs have to come down, not just from increased efficiencies but also from cuts.

Anyone who denies any of those four points is talking out of his ass.

@Thucy: Its not a zero-sum game though.

That 'taxation' causes deadweight and is a market failure.

For the example of unobtainium were assuming this is a mineral.

There are 4 reasons for Jack to have more then John:
1. Jack has more efficient mines (probably due to better technology), making each mine better, allowing him to mine more.
2. Jack works harder, while Johns mines are only open for 1 month a year, Jacks are open for 9, meaning Jack can mine more.
3. Johns mines have 'dried' up. The amount of unobtainium in Johns mines is rare, making it harder to find and therefore sell.
4. Combination of 2 or more of the 3 above circumstances.

Now using supply and demand graphs we can use short run supply for year 1, and long run supply for year 2.

At the moment Jack supplies 900 units and John supplies 100. When the demand increases by 200, Jack, who already has more units, can more cheaply increase supply, at the same time his margin of revenue is higher, meaning he can engage in a supply war against John and easily win. This means while John spends all his profits at sustaining his current supply, Jack is using revenue to expand the industry.

In the end capitalism has determined that Jack wins the race. Regardless of the reason for Jack's success, he is more successful then John, and the fact that in man power years (900 units in 1 year vs 100. I would say hours but in one of the 3 situations Jack works longer and so therefore it has to be on a year by year basis) Jack is 9 times as efficient. Using Jacks wealth to produce more wealth at the end of the second year he is 11 times as efficient.

This means that the market dictates that, regardless of the reason, Jack will produce 11 times as many units.

Given that there are 2 people the market has 2 solutions:
#1. The free market has spoken, John goes bankrupt and has to adopt Jack's policies. This means that now 2200 units can be produced. Due to Jack being the CEO he will probably keep most. This is assuming that Jack is not a monopoly now and doesn't intentionally decrease supply to increase revenue.
#2. Bailout John and start subsidizing him so that he can compete with Jack. As a result while Jack continues to produce 1100 units, his profit margin is the same as Jack, who only produces 100. In reality his profit margin after subsidization is lower then Johns, cause of the costs to Jack to get to the money. Realizing that by decreasing supply Jack does so and reduces his supply to a level playing field of John.

Because of the subsidization John ends up making more profit and buys out Jack raising his production to 400 units (assuming the same amount of wealth was created).

Although government regulations now force him to give half of his wealth to Jack, John still makes more money in this example and is happier.

Final Production (in units) for the two examples:
Freemarket:
Jack 2200
John 0
Total: 2200

Highly Regulated Market:
Jack 200
John 200
Total: 400

Yes John is better off in example 2, but over all the economy is much weaker (2200 vs 400). Of course this is assuming long term effects of markets happen instantly, but it still demonstrates the importance of the free market.

Any tax or subsidy is a market failure because of this, as it makes it so industries with competitive advantages (Jack in the above example) compete on the same field as industries that don't (John in the above example). This makes any competitive advantage useless and makes them not worth having. This above example proves that there is no such thing as a zero-sum economy.

Even if you add scarcity to the equation. Scientists have determined that there are only 12000 units of unobtainium left on the planet.
Currently Jack produces 900 a year and John produces 100. After 10 years Jack should therefore have 10800 units and John should have 1200.

However Jack decides to increase productivity to make sure he gets more of the final pie. Now its 1100 a year vs 100. In the end Jack gets 11000 and John only gets 1000. As a result of this increase in productivity Jack gets 200 more units and John gets 200 less, being zero sum right? Wrong. What the increase in production means an increase in supply meaning a decrease in price.

If the initial Price was of each unit was $1, the new price would be (assuming unit-elastic demand) 83 cents, meaning in reality, Jack would make $9130, and John would make $830. This increase in production decreased Jacks revenue by $1670 and decreased Johns by $370.

However keeping in mind example A was over a 12 year period and example B was over a 10 year one. Yearly revenues of John and Jack are:
Jack:
Example A: $900
Example B: $913

John:
Example A: $100
Example B: $83

Jack makes $13 more and John makes $17 less, so this increase in production cause a decreased wealth by $4.

Now from Jacks perspective I personally wouldn't increase supply cause the cost of production would increase by more then my income, and I would actually make less money.
A 22% increase in production caused a 1.4% increase in income.

Assuming the cost to make each unit is 40 cents:
Jack:
Example A Profits: $6480 ($540/year)
Example B Profits: $4730 ($473/year)

John:
Example A Profits: $660 ($66/year)
Example B Profits: $430 ($43/year)

Jack looses $67/year and John looses $23/year, simply because Jack increased production on an already scarce resource. The reason for a loss (and not a gain) was probably because of the straight line method I was using. As the total supply of the good decreased (from 12000 to 0) the price would increase and because scarcer resources are harder to find, the quantity supplied would probably decrease. Unfortunately my limited knowledge of economics does know who to adjust the profits taking this into account.

The point is the economy isn't zero sum, so making the assumption that it is makes the rest of your arguement invalid.

@nigee: Part of the problem with that is that:
1. Banks are cheaper to bailout then people
2. the money required to bailout people was cause massive inflation, and in the end the people would have to spend most of it to cover the rising costs of goods, rather then pay of debt.

@Orathaic and gman: The fact is wealth is created (even Thucy admitted it in his example) and whenever wealth is created, it doesn't need to be taken by someone else and therefore is no longer zero sum.

The best graph I can use to show that the world isn't zero sum is this:
http://www.economist.com/blogs/dailychart/2011/06/quantifying-history

The people of the 21st century have more wealth per capita then any other time in history. From which century did we take this wealth from? Did we take it from the first century, who compared to us were very poor? No, we took made it from ourselves.

If I make a car, I have added a car into the economy, if I mined the iron, smelted the steel and individually made every single part myself, I didn't take wealth from anyone to make that car, but that car was still made and the wealth of the world increased as a result.

only those who have no understanding of economics make the assumption that the economy is zero sum.

@Fasces
As a non-economist your message was quite clear. However, game theory should be applied, even in a sector with scarce resources (such as the mine considered), larger and efficient cooperations will always try to push the small and inefficient companies out of the market. Thereby all of the reserves will end up with Jack (independently of the amount of ore that is produced by John), majorly because he set an arbitrary price/lower production (in accordance with your predictions). This will only hold in a free market.
To a large extend you're right on the highly governed markets: basically you get to two very different designs of economies. You clearly pointed out one way: production of Jack is limited to a certain amount, which ruins the overal economy (total of 400 vs 2200).
If the Jack's production is not limited, overal economy should be weaker (it seems to be 2200, but should in fact be 400). However, you're neglecting that government will most likely not 'take' all the superfluous money of Jack to help John, thereby government needs to take this money from some place else. Now there are several ways to do so, but that's not the issue of discussion.
About a economy being a zero-sum game: depends on how you count it. It seems that right here everybody does it in money, then I agree with the others. However, measurements of this get distorted if you're printing money during these measurements and will always result in a positive figure.

NO NO NO!

Capital is not the amount of money we have, but it measure in money. Like a country with a billion dollars and no food is worthless.

but the fact is, we create wealth. Even if you adjust for inflation WE ARE RICHER then 50 years ago.

Going back to my example (sorry if it got lost somewhere in the message)

If I choose to make a car, I mine all the iron needed, smelt all the steel, hand make every individual part and build it all by myself. I made a car without costing myself any wealth (other then the sheer amounts of time required) but I didn't take wealth away from anyone. The only difference is I now have a car and before hand I didn't. I just created wealth, and because I took no wealth from anyone else this zero sum no longer balances. ASK ANY ECONOMIST! ZERO SUM IS A MYTH! WEALTH CAN BE CREATED!

Here is a copy and paste from wikipedia on zero sum:
Economics
Many economic situations are not zero-sum, since valuable goods and services can be created, destroyed, or badly allocated, and any of these will create a net gain or loss. Assuming the counterparties are acting rationally with symmetric information, any commercial exchange is a non-zero-sum activity, because each party must consider the goods it is receiving as being at least fractionally more valuable than the goods it is delivering. Economic exchanges must benefit both parties enough above the zero-sum such that each party can overcome its transaction costs.
See also:
Comparative advantage
Zero-sum fallacy
Gains from trade
Free trade

let me highlight the first sentance:
MANY ECONOMIC SITUATIONS ARE NOT ZERO-SUM

If Jacks production is not limited he can produce however much he wants, meaning he will produce more then if he was regulated by the government (this is until he has a monopoly and producing less will give him more profits. Even in an oligarchy sometimes decreasing production will increase revenue. As shown in my above example, when Jack increased the amount he was producing, his revenue went down.

This is basic supply and demand.

I would argue that nothing in the world world is zero sum ...

Well theft is...

Ok so that was long fasces, no time to read it, but I did catch your "scenarios" under which the inequality arises, and I just want to call shenanigans on them.

"There are 4 reasons for Jack to have more then John:
1. Jack has more efficient mines (probably due to better technology), making each mine better, allowing him to mine more.
2. Jack works harder, while Johns mines are only open for 1 month a year, Jacks are open for 9, meaning Jack can mine more.
3. Johns mines have 'dried' up. The amount of unobtainium in Johns mines is rare, making it harder to find and therefore sell.
4. Combination of 2 or more of the 3 above circumstances."

Perhaps you would call it "working harder" but there is another possibility:

Jack, who is strong, goes to Johns house and makes a bunch of sly remarks about how "unfortunate" it would be if John didn't give him a 50% stake in his mine. Or, Jack straight up just steals it but escapes prosecution because of his friends or he's rich. Or, Jack has a quasi-monopoly and is able to sap John's labor pool by intimidating them into not working for John or does corporate espionage or he pays Congress a lot of money to restrict John's mining but not his own.

Etc etc etc.

The point is rich and powerful as well as criminal-esque (esque because they often get away with it) end up getting more than they would if those things were controlled for.

But who does the controlling? you ask.

Gee I dunno. This big company in which everyone is an equal stakeholder I guess. We would pay that company service fees for doing things like protecting us from assholes like Jack. And the big company would set rules for other companies to make them play fair. But since a lot of these things are public goods and have a free rider problem, this big company has to make paying these fees mandatory.

Sound familiar at all?

PS I'm aware of the gains from trade but so what.

Example:

I can make 2 gallons of beer, or 4 gallons of wine. You can make 15 gallons of beer or 3 gallons of wine.

I have a comparative advantage in wine. If we trade at a price of 1 to 1, we both benefit, yes, it is true. You get 11 gallons of beer and 4 of wine, I get 4 gallons of beer. Say I wanted 4 beer the whole time. Alone I couldn't do it.

But something's not right still.

How come you get 11 gallons of beer? Yes sometimes you can get it fairly, but for the asshole ways you can get it unfairly, see above. The only way to stop that sort of unfairness is to have a government that prevents it and corrects for market failures.

Unless you're one of those pinheads that denies that there even are market failures.

There is no invisible hand. The invisible hand has been severed by experience.

However the basic premise that natural resources can be successfully manipulated into something more useful to us I do not challenge. I do remind you however that this is a finite planet and for such growth to continue indefinitely (it has to or else apocalypse), we have to bring things besides this earth into the economy.

But that's more in tune with the Gingrich space thread sorry for bringing that in here.

you negotiate:
If the max number of beer that could be produced is 17 and the max number of wine is 7, then should wine be more expensive as it is a rarer resource.

Say it was traded at 5 to 2 ratio, in the end I would get 10 gallons of beer, you would get 5 gallons of beer and 4 gallons of wine, or something along those lines. Given any comparative advantage and the resources were traded in accordance to scarcity, both parties will always be better off by maximizing their comparative advantages in trade. But remember, supply is only half of the equation, if demand for wine doubled and the demand for beer stayed the same, the country that could produce more wine would become much better off then the country that could only produce beer.

As for your analogy of a corporation known as government. Rather then having the government tax you, take away your profits and spread them around what if companies that committed public good could tax you instead?

Cap and Trade is just that. Cap and Trade is currently used for cutting carbon emissions, in which companies with high carbon emissions have to pay fees to companies with low carbon emissions, the result? A profit-motive in environmentally friend buisness practices meant investors would favour greener companies.

Cap and trade has worked in every country that has done so.

Now as for my pro-free market policies, I have read up alot on economics, I know its not black and white, the government is needed in some cases, but in most cases is too involved as it currently stands.

Like I support free health care and education (and in turn the taxes needed to provide them), I support a small defence budget (America's needs to be cut). I support private-public partnerships in technological sectors such as physics (hadron colliders are useful) and Space exploration. I support the government intervention in preventing monopolies and oligopolies from becoming to powerful. I support government giving breaks to new industries that, with a little push, can become thriving corporations (to expand on this one, tax credits for 'new' corporations, a new corporation would of course, have to be defined to prevent major loopholes. I canada's current employment insurance and do support the need for a pension (but the retirement age is to low as it stands).

I'm not anarchistic capitalist, I support some government, just most governments (America included) are to inflated.

"However the basic premise that natural resources can be successfully manipulated into something more useful to us I do not challenge. I do remind you however that this is a finite planet and for such growth to continue indefinitely (it has to or else apocalypse), we have to bring things besides this earth into the economy.

But that's more in tune with the Gingrich space thread sorry for bringing that in here."
lol about the space.

As for the planet, not all resources are 100% finite. Properly irrigated fields will produce crop year after year. Glaciers will slowly melt and everporate over time, with or without mankinds assistance, we take the fresh water and consumer it, or it flows into the sea, either way it no longer remains fresh water.

In both of the above cases, Mans manipulation of nature doesn't hurt it but help it. I understand the environment (as stated above about cap and trade) and that we are damaging it, but I still think what were doing is being grossly exaggerated by the media and still think mankind does a lot of good.

At least nobody here is arguing for a 999 plan.

believe it or not I supported it. (it was the only think I liked about Cain, well that and an alternative to Obama being a black republican being kinda funny)

-1 faces, -1

for a second I thought that said +1 :(

'Do not start your own business orathaic. You won't want to buy a computer because the productivity increase will put a typist out of work. '

i'm glad you're putting words in my mouth. I just pointed out that your failure of basic logic was obvious. And i don't think i'm the only one to see it.

I never claimed anything about a zero-sum fantasy. But thanks for not addressing the issue i raised. And you compare me to a politician. *MUTED*