Annie
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- Nov 22, 2003
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Explaining the why and wherefore of raising or lowering taxes.
The New York Times > Log In
The New York Times > Log In
October 9, 2010
I Can Afford Higher Taxes. But Theyll 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 dont have trouble making ends meet.
Indeed, I could go so far as to say I am almost completely sated. One reason is that I dont aspire for much more than a typical upper-middle-class lifestyle. I dont 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 wouldnt 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.
...
HERES the bottom line: Without any taxes, accepting that editors 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 familys 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 actors next movie or a particular novelists 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 dont let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.