4
$\begingroup$

I'm creating a developed country where due to tax reasons affluent have more children then the lower classes. The marginal tax rate is very high 80% and there are no legal loopholes to avoid paying taxes. Foreigners including foreign companies are not allowed to own assets in the country. The citizens could legally move their wealth abroad only by selling their assets and emigrating for good.

The rich people who stay in the country have on average more children then the lower classes.

Would higher fecundity of the rich crowd out the economic opportunity for the children born in the lower classes?

An extreme example is Saudi Arabia, where the number of royal princes—around 7,000—is so large that they crowd out mere commoners from officialdom. economist

Example how marginal tax system works.

The sizes of the brackets are for illustration purpose only.

  • 0-10,000 -> 0%
  • 10-20,000 -> 10%
  • 20-40,000 -> 20%
  • 40-80,000 -> 40%
  • 80-... -> 80%

For example a family that earns 300,000 per year, would have tax base of 150,000 if they don't have any children (300,000 / 2), or 50,000 (300,000 / 6) if they have 4 children.

The family without children would pay:

(1,000 + 4,000 + 16,000+ 56,000) X 2 = 77,000 x 2 = 144,000

The family with 4 children would pay:

(1,000 + 4,000+ 4,000) X 6 = 9,000 X 6 = 54,000

| improve this question | |
$\endgroup$
  • $\begingroup$ What kind of opportunity are you talking about? Economic, political, social, etc? $\endgroup$ – Nuclear Wang Jul 13 '17 at 14:19
  • $\begingroup$ @NuclearWang Mostly about economic opportunity. Would there be harder for middle and lower class children to advance then it is now. $\endgroup$ – Dajanon Jul 13 '17 at 14:26
  • $\begingroup$ Didn't we discuss something very similar to this in How to make rich have more children? I feel many of the points made there may be applicable here also. $\endgroup$ – a CVn Jul 13 '17 at 19:04
9
$\begingroup$

At the highest levels, you will find the system self regulates. The issue you see with the princes in Saudi Arabia is that prince is a hereditary title. Wealth acts a bit differently because it has to be split.

For the sake of argument, let's assume a patriarchy where the money follows the male line and women marry into it (just because it emphasizes the point better). If I have a million dollars, and have two kids (one boy, one girl), then I marry off my daughter and my son inherits a million dollars. If I have 10 kids (five boys, five girls), I marry off my daughters and each of my sons inherits just $200k. While the tax breaks provided benefits in the short run, the challenge of distributing the funds damaged my legacy, because now each child inherits less.

In such a system, I would expect a less equitable distribution. The firstborn son will most likely inherit the empire, and all other children will be seen as tiny walking-talking-pooping tax breaks. They'd end up in the lower classes with very little money simply because they weren't firstborn. Of course I'd still love them and give them as much help as I can in terms of using my power to get them good jobs, so there would be some crowding. However, there would be a constant number of these people because, in the next generation, they're poorer so they'll raise their children like they were poorer.

Also, do expect that society is flexible. Society will adapt to the number of each role that is needed. There will be more positions for these high roles available because society will find an optimal path.

| improve this answer | |
$\endgroup$
  • $\begingroup$ Why should such society favor primogeniture? In many societies the wealth is split. $\endgroup$ – Dajanon Jul 13 '17 at 14:41
  • 1
    $\begingroup$ Your rich are welcome to split their wealth. However, the side effect of splitting the wealth is splitting the wealth. The next generation will be in a much lower tax bracket, so their children (aka your grandchildren) wont be rich, so they can no longer possibly be rich crowding out the poor. It could be a valuable solution for rich families, but you're specifically looking at crowding issues, and in 2 generations those crowding issues dissappear, simply because the wealth is no longer concentrated. $\endgroup$ – Cort Ammon Jul 13 '17 at 14:44
  • $\begingroup$ If I'm a owner of a 100 million company and I have 1 child they might or might not be good enough or even interested enough to inherit the company, which opens a possibility to hire a commoner as a CEO when I decide to retire, while my child goes yachting getting money from the hedge fund. However if I have 10 children there's much less money and far more chance that one of them would be interested and competent enough to run the company. And since the rest of them have only 10 millions instead of 100 they can't seat on their ass and live from dividends. $\endgroup$ – Dajanon Jul 13 '17 at 14:58
  • 1
    $\begingroup$ @Dajanon: Well, I could live quite well on the dividends from $10 million :-) But you make a good point. Unless you have a system like the old British entailed estates, the children and grandchildren of people who accumulate wealth tend to spend it, rather than preserve it or accumulate more, so eventually they become poor commoners, $\endgroup$ – jamesqf Jul 13 '17 at 18:10
  • 1
    $\begingroup$ @Dajanon Because GavelKind (Partible or split) Inheritance is an evil evil thing when building a dynasty. The new rich are somewhat different than the family dynasts of the past. The rich industrialists of yole were their own class, and companies tended to stay in families. Now most large companies are international, and publicly traded. This adds pressure to make competence required for their leadership (though nepotism and networking are still Yuge), so there is less reason to not divvy it up. So it really depends on what country, what time period, and where the money comes from. $\endgroup$ – user2259716 Jul 14 '17 at 21:58
4
$\begingroup$

It depends how heritable the things that made their parents rich are. If they won the lottery they would be probably be destitute very quickly, on the other hand if they are brighter, more entrepreneurial the average persons, then commoners would have to surpass more rivals that might start from better position. If we say that things are weakly heritable, say 30% that means there will be 3 children of 10 who want to build their own empire after their parents left them with only a 10th of the inheritance.

In a fluid society the commoners would never be crowded out completely unlike in aristocracy. The only thing I could think of is if the tax brackets are so high that its economical for rich men to live in de facto polygamy having many children outside of marriage with several women. If Bill Gates had 100 children from 10 women it would probably be much harder to make a career in Microsoft.

Here's very nice comparison with China before the communism

If most or all of a father’s property went to the eldest son, then the long-term survival of a reasonably affluent peasant family was assured unless the primary heir were a complete wastrel or encountered unusually bad fortune. But in China, cultural pressures forced a wealthy man to do his best to maximize the number of his surviving sons, and within the richer strata of a village it was not uncommon for a man to leave two, three, or even more male heirs, compelling each to begin his economic independence with merely a fraction of his father’s wealth. Unless they succeeded in substantially augmenting their inheritance, the sons of a particularly fecund rich landlord might be middle peasants—and his grandchildren, starving poor peasants.

Families whose elevated status derived from a single fortuitous circumstance or a transient trait not deeply rooted in their behavioral characteristics therefore enjoyed only fleeting economic success, and poverty eventually culled their descendents from the village.

| improve this answer | |
$\endgroup$
3
$\begingroup$

No crowding out unless the society has a restricted (compared to modern western world) social mobility.

First, I don't think that commoners would restrict their birth rates because tax cut is not very generous. And I don't think either that rich people would go out of their way to have many more children than normal just because of the tax incentive.

Also, amassing a great wealth for an individual in such society would be much more difficult than in present day USA, and somewhat more difficult than in most EU countries.

Now, let's look at the era when rich had many children, just as the commoners, but their survival rate was higher. This is basically all the history before XX century. A firstborn typically (depending on a country) inherited the title and the land, but other children were not totally dispossessed. Even in primogeniture countries, second and third sons had an advantage over commoners in clergy, craftsmanship, mercenary and military professions.

This, however, all changed in modern times when education and training had become more affordable and children of nobility were no longer viewed as "superior blood". Upward social mobility ensured that even if rich people had a lot of children, commoners had no barriers entering higher ranks.

So, I don't think that tax incentives can block social mobility. This society could be a little more "top-heavy", and getting to a top university could be a little more difficult, but overall the difference would be that higher progressive taxes would create more, not less, social equality.

| improve this answer | |
$\endgroup$
  • $\begingroup$ "The sizes of the brackets are for illustration purpose only. " I believe tax system brackets would be tweaked in order for rich families with more children to have more disposable income then DINKs per family member $\endgroup$ – famaz Jul 13 '17 at 20:01
  • 1
    $\begingroup$ @famaz - no matter how we tweak - lack of money have never stopped people from procreation. $\endgroup$ – Alexander Jul 13 '17 at 20:07
  • $\begingroup$ But starvation did. Though far less of a problem now at least in the first world $\endgroup$ – famaz Jul 13 '17 at 20:08
1
$\begingroup$

"Rich" is a relative term, not an absolute one.

In western countries people is considered "poor" if they cannot afford to change the cellphone yearly. A century ago poor people could have problems putting a loaf of bread on the table.

You will never be able to have a large country composed only by rich people because there always be a stratification (very small, non-self-sufficient countries are possible (e.g.: Kuwait or Qatar), but only if you consider all service providers as "foreign workers" not really part of the country).

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.