First of all, honestly, very nice talking to you. As a fiscal (not social!) conservative I enjoy discussions with more of a left-wing friends a lot! So, just wanted to say it's cool talking with you. Which doesn't mean I won't be trying to be badass bad dealing with your responses, lol.

>All very nice for you, but we've hit a core issue: you are >now talking about your personal preferences for tax rates, >rather than addressing the actual economic question >regarding start-ups.
>The economic question is: "At what level of taxation (both >in terms of effective tax percentage and income level where >it kicks in) do taxes become the largest factor preventing> >the formation of start-up companies?" We need to be talking >about Big-O >optimization: we should always solve first the >problem that is largest and whose solution will cause the >fewest new problems.

That's not that difficult to answer that question really. Just look at the data. Where most of the successful start-ups that made it big come from? Start-ups that changed the world (innovation) or created whole new segments of the economy? Amazon, Ebay, Facebook, Microsoft, Apple, GitHub, Oracle, Intel, whatever. Where are they from? France? Israel? Japan? Australia? Canada? Russia? You know the answer. US. And as you pointed out yourself that is where the "anarcho-capitalism" (lol) is, so please connect the dots ;-) (no offense intended)
Actually, the only start-up I can think of that made it big and is non-US based is Skype (based of the UK). You know any others in the IT that made it big and created a new market or changed the world or created whole new market segments and are not US-based?

I think that the business environment is important factor as well. If a country imposes 75% income tax on whoever/whatever it just tells you a whole lot about the public attitudes towards business and capital in that country. It is like a thermometer showing you have a fever. Once you see 39C degrees you know that's no good no matter what's the excuse. It's the same with the tax rate for the markets. 75% looks like very unfriendly place business-wise imposed no matter on whom and for what. This is why it scares off the capital. Because it shows that the general public treats businesses with suspicion. So maybe better to invest somewhere else.

>This assumption is ideologically based (in American anti-tax >rhetoric) and almost definitely wrong. Why? It's obvious: a >start-up founder running on savings and investment isn't >actually bringing in enough new income to get hit with the >top tax-rate! Think >about it: if you're a founder getting >your start-up going, in any country, do you burn your seed >money to give yourself a salary in the top 10% of incomes, >or do you forgo the larger personal income to keep more of >the money in the business for a longer >time? Obviously the >latter.

Obviously not. I work almost for free for many years for a prospect of a single huge payout at the end. If I sell my business for $1 million, I don't want half of it to be taken by the Government! Let me explain in more detail below.

Let' say I sell the business for $1M. Let's say the tax rate is 46%. So, after 2 years of work and investing $100k in it, I make the math:
1. My last job I made $150k a year. Two years equals $300k in lost income.
2. $100k invested from savings
3. Low quality of life for the family
4. $1,000,000 - $460,000 = $540,000 after taxes. (yes, I know it'll be less because rates are progressive, so let's say: $1,000,000 - $350,000 = $650,000)
5. $650,000 - $100k burnt savings - $300k lost income equals... yeah! I just made $250k profit! While the Government made $350k.

I invested years of my live, substandard living, and $100k in savings plus $300k in lost income. The Government invested nothing. Oh, actually it has been trying to make it as difficult for me as possible all the time because that what Governments do by design when they come in touch with any business: regulations, paperwork, imposing controls, etc. So, at the end: I made $250k. The Government made $350k. You call this fair because I could use roads and sewage system? Geeez, thanks!

Now look at these numbers again as they explain why you won't see Google or Amazon going out of France or Israel any time soon.

As I said in the previous post the tax scheme that you have in Israel works only with a short-term business plan that is a sure thing. Like an IT consultancy when I know that clients are there for sure. And they are there right now. So, I don't loose $300k in income and don't need $100k in savings to work on something without any income for another 2 years. I can start today and have income tomorrow. But that's NOT how innovation happens. I'm sorry. Innovation takes time and funding. Your taxation scheme kills it before it even has chance to happen.

>So the tax rate on the rich and the upper-upper middle class >is not the deciding factor. To pose a counterpoint: would >you found a start-up in a country with a 10% income tax but >no intellectual-property laws?

No. But I would in a country with comparatively low income tax and very strong intellectual property laws.