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Rich people can afford higher taxes.
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Higher taxes make rich people work less.
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Both of the above.
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"I Can Afford Higher Taxes. But They値l Make Me Work Less."

Old 10-12-10, 02:56 PM
  #1  
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"I Can Afford Higher Taxes. But They値l Make Me Work Less."

Those who favor higher taxes on the rich claim that the rich can afford it.

Those who oppose higher taxes on the rich claim that it would make them work less.

This writer says that both of those claims are correct.

I agree with him.

What do you think?


http://www.nytimes.com/2010/10/10/bu...view.html?_r=1

October 9, 2010

I Can Afford Higher Taxes. But They値l Make Me Work Less.

By N. GREGORY MANKIW

AN important issue dividing the political parties is whether to raise taxes on those earning more than $250,000 a year. Democrats say these taxpayers can afford to chip in a bit more. Republicans say raising taxes on those who already face the highest marginal tax rates will hurt the economy.

So I thought it might be useful to do a case study on one of these high-income taxpayers. Fortunately, I have one handy: me.

As a professor at Harvard and the author of some popular textbooks, I am comfortably in the income range that would be hit by this tax increase. I have been thinking narcissistically, to be sure about how higher taxes would affect me. Maybe these thoughts can shed some light on some of the broader policy issues.

First, I have to acknowledge that the Democrats are right about one thing: I can afford to pay more in taxes. My income is not in the same league as superstar actors and hedge fund managers, but I have been very lucky nonetheless. Unlike many other Americans, I don稚 have trouble making ends meet.

Indeed, I could go so far as to say I am almost completely sated. One reason is that I don稚 aspire for much more than a typical upper-middle-class lifestyle. I don稚 fly around on a private jet. I have little desire to own a yacht or a Ferrari. I own only one home, in which I have lived since 1987. Paying an extra few percent in taxes wouldn稚 create a lot of hardship.

Nonetheless, as Republicans emphasize, taxes influence the decisions I make. I am regularly offered opportunities to earn extra money. It could be by talking to a business group, consulting on a legal case, giving a guest lecture, teaching summer school or writing an article. I turn down most but accept a few.

And I acknowledge that my motives in taking on extra work are partly mercenary. I don稚 want to move to a bigger house or buy that Ferrari, but I hope to put some money aside for my three children. They will never lead lives of leisure, but I hope they won稚 have to struggle to find down payments to buy their own homes or to send their kids to college.

Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding.

Now let痴 put taxes into the calculus. First, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. Beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. And in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving.

And that saving no longer earns 8 percent. First, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains. Then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years.

Then, when my children inherit the money, the estate tax will kick in. The marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. Most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it.

HERE担 the bottom line: Without any taxes, accepting that editor痴 assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family痴 marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.

Now you might not care if I supply less of my services to the marketplace although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.

Maybe you are looking forward to a particular actor痴 next movie or a particular novelist痴 next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report (http://www.nber.org/digest/jul00/w7512.html) that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.

Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don稚 let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.
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Old 10-12-10, 03:00 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

I thought this was another Lemmy thread
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Old 10-12-10, 03:05 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

I know the feeling.

I've been working pretty hard this year and I've hit the point where my after tax income makes it not worth doing those 50-70 hour weeks anymore.
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Old 10-12-10, 03:07 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

He's comparing the $1,000 he earns at ZERO tax rate, and compares to it every possible tax imaginable he could throw in there? I don't know if I could make a more ridiculous example of taxes affecting behavior than he just did.
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Old 10-12-10, 03:10 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Back when we had overtime on the department higher taxes was a very common excuse I heard for not taking extra hours.
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Old 10-12-10, 03:12 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by spainlinx0 View Post
He's comparing the $1,000 he earns at ZERO tax rate, and compares to it every possible tax imaginable he could throw in there? I don't know if I could make a more ridiculous example of taxes affecting behavior than he just did.
Isn't every tax he 'imagines' the reality of the situation?
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Old 10-12-10, 03:12 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

I voted neither.

First, all so-called rich people are not in the same financial position. Some of them have alot of debt/obligations and some of them just flat-out are stupid with money and spend most of what they bring in. Some of them might be living paycheck-to-paycheck, and higher taxes would not allow them to meet their obligations or maintain their lifestyle. Of course, "rich" people who live this way are kinda stupid, but it doesn't change the fact that there are probably lot of them out there. Also, I have a problem calling someone who makes $250K a year a "rich" person.

Second, although some of them, like the article writer, may work less, most of them will likely just find new ways to get around paying taxes (as they should).
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Old 10-12-10, 03:13 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

I read that op-ed first thing this morning and I wondered how long it would take for you to post it. Ten hours. I'm very disappointed in you, grundle. Very disappointed.

FWIW, I liked Gelman's (somewhat facetious) response:

Greg Mankiw calculates his marginal tax rate as 80%. Two years ago, he estimated that his marginal tax rate under an Obama administration would be 93%. (1-0.80)/(1-0.93)=2.9, so . . . Mankiw is actually keeping 290% of the amount of money he was expecting to keep.
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Old 10-12-10, 03:18 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

My wife doesn't work less to grow her business based on taxes. That's absurd. She grows her business because that's her career and what she loves to do.
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Old 10-12-10, 03:20 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by wendersfan View Post
I read that op-ed first thing this morning and I wondered how long it would take for you to post it. Ten hours. I'm very disappointed in you, grundle. Very disappointed.

FWIW, I liked Gelman's (somewhat facetious) response:
I read it on Friday (or maybe Saturday). He's really behind.
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Old 10-12-10, 03:42 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Separate from any effects on the nation's fisc, I am fully in support of any proposed policy that makes Gregory Mankiw work less.

By the way, Professor Mankiw wrote the first edition of his Principles of Economics textbook during the Clinton administration, when he was paying the same oppressive tax rates he fears President Obama will put in place.
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Old 10-12-10, 03:42 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by wendersfan View Post
I read that op-ed first thing this morning and I wondered how long it would take for you to post it. Ten hours. I'm very disappointed in you, grundle. Very disappointed.

FWIW, I liked Gelman's (somewhat facetious) response:
That's also political logic.
If we threaten a 30% tax increase, and the increase is only 25%, why, that's a tax cut!

I don't know if it'll make them work less, because as long as they're seeing some incremental improvement related to their extra work, it's a motivation. And many businessmen still actually want long term growth/success, more customers, bigger market share, more products, over a single lucky year.

I definitely think it will make them work harder - at finding loopholes and (legal) ways to keep more of their money.
Except for the ultrarich, the Bill Gateses, etc, who can definitely "afford" to give away a hundred million dollars to score political points.
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Old 10-12-10, 03:47 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

My first thought whenever I read these sorts of articles is that the author should have stopped at:

... I have been very lucky ...
Yes, you have Mr. Mankiw. And you should be grateful you're able to worry at all about an inheritance tax while a majority of Americans can't even hope for comfortable retirement. And beyond that, a majority of people on Earth won't experience a fraction (one with an exceedingly high denominator) of the comfort he enjoys. Makes bitching about a 2% increase on the tax rate applied to taxable income earned in excess of $250k seem rather shameless.

But I understand as a matter of policy this emotional response isn't useful. And on that note I say he makes a decent argument. I think our current tax system probably places too large a burden on that income range in between making a great living and filthy rich. I support a reduction in government spending and a corresponding decrease in the marginal rates (or a restructuring of the entire code, which has grown far too onerous). I think in America a person should be able to earn income and possess wealth commensurate with a normal retirement and the possibility of leaving something to their children after death, without being considered 'rich'.
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Old 10-12-10, 03:52 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by spainlinx0 View Post
He's comparing the $1,000 he earns at ZERO tax rate, and compares to it every possible tax imaginable he could throw in there? I don't know if I could make a more ridiculous example of taxes affecting behavior than he just did.
Originally Posted by Red Dog View Post
Isn't every tax he 'imagines' the reality of the situation?
Exactly. Every tax imaginable also just happens to be every tax that would hit the money earned in question.


Originally Posted by CRM114 View Post
My wife doesn't work less to grow her business based on taxes. That's absurd. She grows her business because that's her career and what she loves to do.
There is likely a difference in being a business owner who grows a business for future payoff, and a doctor who decides he doesn't need to work as much when half of it is going to the government. I think the article makes an excellent point.
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Old 10-12-10, 03:55 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by kvrdave View Post
There is likely a difference in being a business owner who grows a business for future payoff, and a doctor who decides he doesn't need to work as much when half of it is going to the government. I think the article makes an excellent point.
That's the problem with the article. Focuses on independent contractors and service providers. Point is valid there. But who cares? Someone else will step in and fill the void.
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Old 10-12-10, 03:58 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

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Old 10-12-10, 04:01 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by kvrdave View Post
and a doctor who decides he doesn't need to work as much when half of it is going to the government.
Or for other economic considerations - such as rising MM premiums.
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Old 10-12-10, 04:03 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

So wait, because he doesn't live in a zero tax world he will not take assignments that would net his children $1000 in the future?

What a dick!
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Old 10-12-10, 04:22 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

I'm surprised the guy wrote an economics textbook.
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Old 10-12-10, 06:49 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by spainlinx0 View Post
He's comparing the $1,000 he earns at ZERO tax rate, and compares to it every possible tax imaginable he could throw in there? I don't know if I could make a more ridiculous example of taxes affecting behavior than he just did.
That's a good point.

He also made this more realistic comparison, although I did not bold it:

By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.
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Old 10-12-10, 06:53 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by cdollaz View Post
I voted neither.

First, all so-called rich people are not in the same financial position. Some of them have alot of debt/obligations and some of them just flat-out are stupid with money and spend most of what they bring in. Some of them might be living paycheck-to-paycheck, and higher taxes would not allow them to meet their obligations or maintain their lifestyle. Of course, "rich" people who live this way are kinda stupid, but it doesn't change the fact that there are probably lot of them out there. Also, I have a problem calling someone who makes $250K a year a "rich" person.

Second, although some of them, like the article writer, may work less, most of them will likely just find new ways to get around paying taxes (as they should).
I agree with you that not all rich people are good with managing their money, and that $250,000 is not necessarily rich (especially if you are living in Manhattan and have a wife and two kids), and that many rich people do find ways to reduce their tax burden.

But I think his claims are about people's general tendencies toward certain behaviors, as opposed to saying that every single person will behave that way.
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Old 10-12-10, 06:54 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by wendersfan View Post
I read that op-ed first thing this morning and I wondered how long it would take for you to post it. Ten hours. I'm very disappointed in you, grundle. Very disappointed.

Yes, I feel very bad about being so late. I will try to be more prompt next time.
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Old 10-12-10, 06:57 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by CRM114 View Post
My wife doesn't work less to grow her business based on taxes. That's absurd. She grows her business because that's her career and what she loves to do.
Sure. Not everyone will act like what's described in the opinion column. People who love their jobs will be less likely to cut back their hours due to higher taxes. Different people respond differently to different policies.
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Old 10-12-10, 06:58 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by JasonF View Post
Separate from any effects on the nation's fisc, I am fully in support of any proposed policy that makes Gregory Mankiw work less.

By the way, Professor Mankiw wrote the first edition of his Principles of Economics textbook during the Clinton administration, when he was paying the same oppressive tax rates he fears President Obama will put in place.

I think maybe it's not just the tax rates that affect people's behavior, but also the changes in tax rates too. Compared to the Jimmy Carter years, Clinton's tax rates were low.
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Old 10-12-10, 07:17 PM
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Re: "I Can Afford Higher Taxes. But They値l Make Me Work Less."

Originally Posted by X View Post
I know the feeling.

I've been working pretty hard this year and I've hit the point where my after tax income makes it not worth doing those 50-70 hour weeks anymore.
Originally Posted by DeputyDave View Post
Back when we had overtime on the department higher taxes was a very common excuse I heard for not taking extra hours.
Originally Posted by CRM114 View Post
My wife doesn't work less to grow her business based on taxes. That's absurd. She grows her business because that's her career and what she loves to do.
Originally Posted by dtcarson View Post
That's also political logic.
If we threaten a 30% tax increase, and the increase is only 25%, why, that's a tax cut!

I don't know if it'll make them work less, because as long as they're seeing some incremental improvement related to their extra work, it's a motivation. And many businessmen still actually want long term growth/success, more customers, bigger market share, more products, over a single lucky year.

I definitely think it will make them work harder - at finding loopholes and (legal) ways to keep more of their money.
Except for the ultrarich, the Bill Gateses, etc, who can definitely "afford" to give away a hundred million dollars to score political points.
Originally Posted by kvrdave View Post
Exactly. Every tax imaginable also just happens to be every tax that would hit the money earned in question.




There is likely a difference in being a business owner who grows a business for future payoff, and a doctor who decides he doesn't need to work as much when half of it is going to the government. I think the article makes an excellent point.
Originally Posted by eXcentris View Post
I'm surprised the guy wrote an economics textbook.
Originally Posted by grundle View Post
I agree with you that not all rich people are good with managing their money, and that $250,000 is not necessarily rich (especially if you are living in Manhattan and have a wife and two kids), and that many rich people do find ways to reduce their tax burden.

But I think his claims are about people's general tendencies toward certain behaviors, as opposed to saying that every single person will behave that way.
Reporting live from Read A Fucking Economics Textbook that's higher than a high school reading level, and stop listening to those dipshits on the news.:

A local farmer decides to hire hands for the new wheat growing season. He decides to hire 10 men to work on 100 acres of land for 3 months. It turns out though, that he can boost production because of increased demand for wheat. So he decides to hire 20 men instead of 10, and they'll work on the same 100 acres of land for 6 months.

However, it turns out he made less money this year than last. How is that possible?

Because of the law of diminishing marginal returns. Each laborer he added created an additional marginal cost, but each additional worker did not add to his productivity enough to make up for the additional costs he incurred. As a result, his average return on each worker was actually falling instead of staying level. His total output might have increased, but his marginal returns were falling exponentially as his marginal costs were increasing at a linear rate.

Combine this with the law of diminishing marginal utility, it turns out that working harder nets you less and less of a marginal gain over time, regardless of the marginal tax rate. Eventually you reach a point where you're better off not adding additional labor, because as you work more, the opportunity cost of your time decreases dramatically. You're actually better off working 40 hours a week and sitting on a couch the rest of the time, than it is to work 60 hours a week.

Also consider that as a percentage of their total income, rich people pay less regressive taxes like customs, duties, tariffs, and sales taxes. Their consumption as a percentage of their total income decreases as well, so the impact of larger marginal tax rates is negligible on the economy. $1 in the hands of a poor person and $1 in the hands of a rich person has the same buying power, but the poor person has a greater tendency to spend that dollar and considering his income is smaller, a larger percentage of his total income.

*takes sip of whisky*

Thank you.
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