American Roulette

Among the cases made for lower taxes is the idea that taxes discourage hard work. But if very rich people make more than somewhat-wealthy people not because they work hard but because they are lucky, then this argument is pretty weak. If luck is what determines the difference between a $150k salary and a $10M salary, then it makes a lot of sense to have a very progressive income tax - to tax income above $150k a lot more than income up to $150k. You wouldn't be discouraging work, you'd be discouraging good luck (which is impossible).

Robert Frank and Hal Varian make this case in detail here.

Of course, I think it's not that simple. For one thing, it's very hard to look at the evidence and separate "skill" and "hard work" from "luck" in explaining people's level of income. Bill Gates famously had access to computers at an early age, meaning he was lucky enough to get computer skills and understand the potential of computers before his peers. His skill came from luck, but it was real skill; who else could have built Microsoft? Then again, would a 10% higher tax rate on his upper $1,999,849,000.00 really have discouraged him from building Microsoft?

I myself think that the practical case for more progressive taxation is dominated by the fact that taxes under 70% really just don't discourage people from working. The evidence is there. That is far more important than the work-skill-luck thing - it means we can safely take away 2/3 of extremely rich people's income without hurting the economy.

But the fact that a lot of wealth comes from luck-of-the-draw undercuts the moral case for low taxes. Republicans often characterize progressive taxation as "punishing winners." But that sounds a lot less evil if the game they're winning is Roulette.