The Surplus Law

This working paper presents a simple model of an island economy in which rising productivity, under conditions of limited private absorption, tends to raise the required tax share on output if the working population is kept at a full living standard. Cutting the benefit level does not reduce that tax rate. The only pure-case ways to lower the tax rate are to increase the living standard of the working population or to reduce working time. Increasing the living standard of the working population encounters environmental limits and the risk of consumer over-saturation. Reducing working time encounters social resistance, because many people derive meaning, status and structure from work. If both methods are used only to a limited extent, the expected efficiency gains of the coming years will still push the tax rate upward. Three counter-intuitive results follow directly from the arithmetic of the island model: For each round of efficiency gains the tax rate will rise. Declining living standards for the working population increase the required tax rate. Declining living standards for people on benefits are completely tax-neutral. Once this arithmetic is accepted, attention can shift from repeated attempts to force the tax rate down toward the deliberate design of high-value activity outside pure production (care, education, nature stewardship, culture, and better use of the experience of people in retirement). The model is deliberately stylised, yet it isolates a structural pressure that is increasingly relevant to high-income societies facing rapid efficiency gains from AI and automation. This working paper was developed with the assistance of AI (Grok) for structuring, editing and refining the formulation.