Can Afford Higher Taxes. Will Work Less.

[Annie]

Explaining the why and wherefore of raising or lowering taxes.

The New York Times > Log In

October 9, 2010
I Can Afford Higher Taxes. But They’ll 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’t 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’t aspire for much more than a typical upper-middle-class lifestyle. I don’t 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’t 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.

...

HERE’S the bottom line: Without any taxes, accepting that editor’s 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’s 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’s next movie or a particular novelist’s 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 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’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.

 

[Baruch Menachem]

People make decisions on the margin. you move the margin, you change the decisions they make.

Lower income people have no real choice in the matter. They have to produce to the limit of their time, or they lose.

At the level of income that the Tax cuts are at, increases in taxes result in less economic activity, which means those who need the services do without, and the government looses income.

 

[Annie]

People make decisions on the margin. you move the margin, you change the decisions they make.

Lower income people have no real choice in the matter. They have to produce to the limit of their time, or they lose.

At the level of income that the Tax cuts are at, increases in taxes result in less economic activity, which means those who need the services do without, and the government looses income.

Exactly. Right now those with money just don't know where 'all this' is going, so gold and silver keep rising. When the investor class decides the economy has bottomed, those commodities will begin to fall, right now? Nope, they don't think bottom's hit yet.

Same with this class warfare. The poor and middle class, they'll keep working and paying, no choice. The high earners? They have choices. Oftentimes like doctors, they work many, many hours. They could choose to work less and fall below to the other side of no man's land.

 

[wyomingpatriot]

but none of those people couldve become wealthy without society and government protecting their wealth. if there was no government to create law and order, there would be no security, and anyone could have come around to seize their fortune. taxes are essentially a citizen's fee to be a citizen and enjoy (theoretically) protection, justice, public roads, public parks, public everything. that is why wealthy people dont deserve tax cuts. but hell, wouldnt you rather live in squallor in a shack paying no taxes than live in a mansion paying alot of taxes, wondering if perhaps you shouldnt buy another ferrari?

 

[Annie]

but none of those people couldve become wealthy without society and government protecting their wealth. if there was no government to create law and order, there would be no security, and anyone could have come around to seize their fortune. taxes are essentially a citizen's fee to be a citizen and enjoy (theoretically) protection, justice, public roads, public parks, public everything. that is why wealthy people dont deserve tax cuts. but hell, wouldnt you rather live in squallor in a shack paying no taxes than live in a mansion paying alot of taxes, wondering if perhaps you shouldnt buy another ferrari?

Yep, but the guy that can remain in his mansion and take time to enjoy it and family becomes more likely when the opportunities to actually make more decline. Read the article, it's something that one wishes Obama and his economic team would read. Just once, not making the wrong choices.

 

[Ozmar]

but none of those people couldve become wealthy without society and government protecting their wealth. if there was no government to create law and order, there would be no security, and anyone could have come around to seize their fortune. taxes are essentially a citizen's fee to be a citizen and enjoy (theoretically) protection, justice, public roads, public parks, public everything. that is why wealthy people dont deserve tax cuts. but hell, wouldnt you rather live in squallor in a shack paying no taxes than live in a mansion paying alot of taxes, wondering if perhaps you shouldnt buy another ferrari?

It's kind of a give and take: The government needs the money generated by taxes to provide that protection and environment that is friendly to individuals becoming wealthy. As for your postulation that anyone could seize their fortune, where there's a power vacuum, there is always someone to take that place. The rich in 3rd world countries hire private armies to protect them. No one "seizes" their fortune.

 

[Greenbeard]

So is this Mankiw's way of announcing he's giving up his column at the NYT because the pay for that extracurricular won't be worth it anymore?

 

[edthecynic]

Explaining the why and wherefore of raising or lowering taxes.

The New York Times > Log In

October 9, 2010
I Can Afford Higher Taxes. But They’ll Make Me Work Less.
By N. GREGORY MANKIW

HERE’S the bottom line: Without any taxes, accepting that editor’s 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’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

 

[Care4all]

If they work less and there is a demand for their work, someone else, some younger whipper snapper, will come in and fill the void.

 

[Greenbeard]

In fairness, he's relying pretty heavily on his being dead in his example. Reduced incentive to earn because, you know, someday he'll be dead.

 

[Revere]

If they work less and there is a demand for their work, someone else, some younger whipper snapper, will come in and fill the void.

Yes, less qualified. Who comes out ahead on that?

Or, they'll drop the column because it will be an easy way to cut costs.

Less productivity. A poorer society. A real blueprint for a better America.

 

[Revere]

Not to mention the fact that the "young whippersnapper" won't fall into this same marginal tax bracket, at the old rate or the new, so the government will be worse off than if they didn't raise the taxes in the first place.

 

[Care4all]

Not to mention the fact that the "young whippersnapper" won't fall into this same marginal tax bracket, at the old rate or the new, so the government will be worse off than if they didn't raise the taxes in the first place.

that's just how our system works and how it has worked Revere.

those that are older and more experienced slow down in their latter years and those initially less experienced, take their places....then those that were less experienced become more experienced, and eventually older and work less themselves, while another youngun comes in and takes their spot.

No one is indispensable.

And when demand for something is there, the market will fill the void.

 

[Ravi]

Why would medicare come out of that $1,000? The writer of the article is a liar.

 

[Revere]

Not to mention the fact that the "young whippersnapper" won't fall into this same marginal tax bracket, at the old rate or the new, so the government will be worse off than if they didn't raise the taxes in the first place.

that's just how our system works and how it has worked Revere.

those that are older and more experienced slow down in their latter years and those initially less experienced, take their places....then those that were less experienced become more experienced, and eventually older and work less themselves, while another youngun comes in and takes their spot.

No one is indispensable.

And when demand for something is there, the market will fill the void.

No it's not. Has nothing to do with the paper's lackof demand for the columnists's services. It's government serfdom. Government confiscating most of your wages is not freedom, it's serfdom.

The paper did not ask the writer to take a pay cut, the goverment forced him over a cliff. He has some expertise they are willing to continue to pay him for, they are not looking to replace hiim.

That's not how "our system" works.

 

[Sallow]

but none of those people couldve become wealthy without society and government protecting their wealth. if there was no government to create law and order, there would be no security, and anyone could have come around to seize their fortune. taxes are essentially a citizen's fee to be a citizen and enjoy (theoretically) protection, justice, public roads, public parks, public everything. that is why wealthy people dont deserve tax cuts. but hell, wouldnt you rather live in squallor in a shack paying no taxes than live in a mansion paying alot of taxes, wondering if perhaps you shouldnt buy another ferrari?

 

[Revere]

Why would medicare come out of that $1,000? The writer of the article is a liar.

It's not Medicare. It's the expiration of the Bush tax cuts.

Acquire some knowledge about marginal tax rates.

 

[Sallow]

If they work less and there is a demand for their work, someone else, some younger whipper snapper, will come in and fill the void.

Yes, less qualified. Who comes out ahead on that?

Or, they'll drop the column because it will be an easy way to cut costs.

Less productivity. A poorer society. A real blueprint for a better America.

Actually..this is the new model for American corporate culture. Fire the older more experienced workers, fill the void by either putting the work load on the people that are still employed or hire cheap young labor. (Consultants, who get no benefits and can be easily fired)

And your right..over the long term..its bad. But short term it shows huge profit. And that's the bottom line with this strategy.

 

[Ravi]

Why would medicare come out of that $1,000? The writer of the article is a liar.

It's not Medicare. It's the expiration of the Bush tax cuts.

Acquire some knowledge about marginal tax rates.

Read the article linked. It may prevent you from looking stupid in the future.

 

[Care4all]

Why would medicare come out of that $1,000? The writer of the article is a liar.

It's not Medicare. It's the expiration of the Bush tax cuts.

Acquire some knowledge about marginal tax rates.

the expiration of the bush income tax cuts is a 3.5% tax hike on whatever this man makes OVER $250K.

HOW does he go from making $2000 out of his 10k to $1000 out of his $10k by a 3.5% increase in tax on what he makes over and above the $250k?

he makes no sense? I think I agree with Ravi, the man in the op is a deceiver/liar.