Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
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Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#2Long story short: Mankiw could take a $1k speaking engagement and, after 30 years of compounding 8% (please pass on stock tips, Mankiw) growth, pass on $10,000 to his children. But because of a battery of taxes, it will only come to $1700. And because he will likely be dead after 30 years, the estate tax will chew up another $700. Therefore, he won't do the speaking engagement.
"In effect, once the entire tax system is taken into account, my family's marginal tax rate is around 90%".
While continuing to point out that the US has a lower tax burden than Denmark, Sweden, Belgium, Italy, France, Austria, Finland, Norway, Hungary, Luxembourg, The Netherlands, The Czech Republic, Portugal, Germany, Iceland, the UK, Poland, New Zealand, Spain, Canada, Greece, Australia, Switzerland, Slovakia, Japan, and Ireland, and also pointing out that several of America's most unprecedented periods of economic growth occurred under significantly more onerous taxes than Mankiw faces in 2010, I concede that there is in fact a coherent narrative that he can construct in which a Harvard professor might turn down a speaking engagement because of the rollback of the Bush tax cuts. That's a price I'm willing to pay, but you'll have to make up your own mind.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#3Long story short: Mankiw could take a $1k speaking engagement and, after 30 years of compounding 8% (please pass on stock tips, Mankiw) growth, pass on $10,000 to his children. But because of a battery of taxes, it will only come to $1700. And because he will likely be dead after 30 years, the estate tax will chew up another $700. Therefore, he won't do the speaking engagement. "In effect, once the entire tax system…
A lot of dreaming and fantasy reasoning going on there. A compounding rate of 8% is a false premise to start from. Ask anyone who has figured the lat 20 years into their retirement calculations. A more rational take would be to assume you can't project rates in the future, but if you do the talk you will get money now, which has value now. A bird in the hand. And if he is concerned about what happens to his money after he dies then the most rational approach is to spend it while alive. History shows the heirs will waste it away.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#4Long story short: Mankiw could take a $1k speaking engagement and, after 30 years of compounding 8% (please pass on stock tips, Mankiw) growth, pass on $10,000 to his children. But because of a battery of taxes, it will only come to $1700. And because he will likely be dead after 30 years, the estate tax will chew up another $700. Therefore, he won't do the speaking engagement. "In effect, once the entire tax system…
I like how he compares the hypothetical 8% compounding to the concrete values of the tax cuts.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#5Out of curiosity, does anyone know what tax rates looked like in the 1800s? Zweig's 'The World of Yesterday' says it was in the single-digits in Vienna, but I'd like to have better numbers for more places.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#6He's ignoring the fact that having Mankiw work less may be a good thing. If Mankiw makes that $1000 for an article, he'll sock it away and it won't get spent for 10+ years. If a starving writer instead takes the job, he'll spend it immediately.
I do not see the downside.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#7Arguing against higher taxes because they discourage people from working is like arguing against jailing people for drug offenses because it overcrowds jails. It could be right (though in the case of raising taxes, history doesn't seem to bear this out), but it's not the real reason that we shouldn't want to pay higher taxes. The reason is that they do bad stuff with our money. There's a sense in which it can be said that all of your tax money goes towards paying down interest on the national debt, but if you take a look at what that debt is for, you'll likely be unhappy. If we (the people who don't want to pay higher taxes) pretend that it's for some reason other than it is, we put ourselves at risk of being told that our made up reason is stupid.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#8Do Americans have to pay income tax whenever value of stock appreciates (even if he does not sell in the market)? I doubt it. Since valuation of stock would vary.
Here in India, the only tax Mankiw would have to pay is when he sells the stock after 30 years and gets a capital gain. So, he would still have an effective 8% compound rate. So he would end up paying tax on $10000. Assuming 30%, he would still keep $7000.
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#9He's ignoring the fact that having Mankiw work less may be a good thing. If Mankiw makes that $1000 for an article, he'll sock it away and it won't get spent for 10+ years. If a starving writer instead takes the job, he'll spend it immediately. I do not see the downside.
A few problems with your analysis.
- Money that is "socked away" in savings accounts or investment portfolios reenters the economy through lending or through decreasing cost of capital for businesses.
- It is inherently better for Mankiw to write articles than it is for starving writers to do so. If anyone derived value from what the starving writer was writing, they would be getting paid for it and therefore not be starving (generalization -- there may be a few cases of highly valued writers being paid almost nothing and sharing their works for free to a wide audience, but I'm not aware of such). In the common case, that means that we are paying the starving writer for producing ~0 value, and decreasing the value that Mankiw produces, resulting in an overall decrease of wealth for society.
The fundamental misunderstanding you seem to be embracing is that the function of any individual in an economy is to pass the money they receive in wages forward to the next person in the chain. But this is not so: from an economic perspective, value is lost when less overall wealth is produced, so it's important not to encourage people in pursuits that hold no value to society as a greater whole. For example, society ought not pay artists that produce nothing other people want to look at for their services, nor should society pay programmers who produce software no one uses. On the other hand, society should avoid decreasing the output of those whose work is valued highly, like Mankiw's.
(If you derive some perverse value from having money wasted, then it would of course be fine for you to pay starving artists, but I'm arguing that society as a whole through the government should not.)
Re: Greg Mankiw: I Can Afford Higher Taxes. But They’ll Make Me Work Less.
#10Do Americans have to pay income tax whenever value of stock appreciates (even if he does not sell in the market)? I doubt it. Since valuation of stock would vary. Here in India, the only tax Mankiw would have to pay is when he sells the stock after 30 years and gets a capital gain. So, he would still have an effective 8% compound rate. So he would end up paying tax on $10000. Assuming 30%, he would still keep $7000.
Not when stock appreciates, but you get taxed each year on dividends and interest paid out by investments. That is how I end up paying taxes on my investments every year, which still have unrealized losses of 35% or so.