October 10, 2010

"I Can Afford Higher Taxes. But They’ll Make Me Work Less."

Professor Mankiw explains how things work.

119 comments:

America's Politico said...

Well, I cannot speak for a rich GOP economist. The policies of Bush failed us. The partisan work of GOP congress has failed us. The alternative offered by Obama/Biden + Pelosi + Reid has been what has saved our nation from defaulting. Without their dedication, we will be ruined. This is why we must retain all three: House, Senate, and White House. Else we will suffer like other countries. We must not. We must support our leaders: Obama/Biden, Pelosi, and Reid. The voters are getting a sense of this. You can see how the voters in CA, WA, IL, and CT (a few examples) are going away from GOP and towards the Democratic candidates. This is the right way. Indeed, this is the only way out of the mess caused by the GOP from 2001 to 2009.

1jpb said...

I hope that my competitors choose to limit their business.

Please go galt.

More for me!!!!

[And, I don't mind paying four (or so) cents when it's buying me a dollar in new business, especially when the competition gives up. Therefore there's less pressure for me to be competitive in the market, so maybe I'll make up the four cents, and then some.]

t-man said...

Thank you, David Axelrod, er, America's Politico, for that spectacular post!

Defenseman Emeritus said...

I wonder how much Prof. Mankiw had to pay the NYT to run an article critical of Democrat tax policy.

1jpb said...

BTW, BJ noted that Greg may not understand how corps pay taxes in practice.

Here is the source for the link.

Bruce Hayden said...

Well, I cannot speak for a rich GOP economist. The policies of Bush failed us. The partisan work of GOP congress has failed us. The alternative offered by Obama/Biden + Pelosi + Reid has been what has saved our nation from defaulting. Without their dedication, we will be ruined. This is why we must retain all three: House, Senate, and White House. Else we will suffer like other countries. We must not. We must support our leaders: Obama/Biden, Pelosi, and Reid. The voters are getting a sense of this. You can see how the voters in CA, WA, IL, and CT (a few examples) are going away from GOP and towards the Democratic candidates. This is the right way. Indeed, this is the only way out of the mess caused by the GOP from 2001 to 2009.

Keep dreaming and parroting repeatedly discredited talking points. And see if anyone here takes you seriously.

T J Sawyer said...

I notice that Dr. Mankiw was labeled as, "an adviser to President George W. Bush."

If he had "proper" views, I suppose he would have been tagged, "Former Chairman of the President's Council of Economic Advisers."


wv: hawbace - one of those Japanese cooking stoves?

1jpb said...

This is actually the BJ post.

Mistermix doesn't make a convincing argument, but he did have a useful link. And, the dog in the bucket is funny.

SteveR said...

Fortunately if AP and PB&J are agin it, I'm for it. Saves me time

Sixty Grit said...
This comment has been removed by the author.
Rialby said...

My wife and I will make more than 250k this year. I am now considering an opportunity with a friend that would put my wife and I below 250k. The fact that I can get under the cap makes this more attractive to me.

Sixty Grit said...
This comment has been removed by the author.
Rialby said...

On a related note... my wife and I just had a serious conversation about the fate of my 401k and other assets in the event that I die. The fact that some large percentage (30+?) could be sucked up by the Federal government makes me sick to my stomach.

Then the topic turned to her parents who have an estate worth more than $2M - all in real estate owned as part of a very small business.

Her brothers have been banking on getting their hands on those assets for years. Unfortunately for them, they cannot afford to buy them outright which means that if they inherit them and Obama's bill comes due, they could owe $1M+, no?

The only way to get that $1M for the Feds is to liquidate assets to cover the cost, no?

Sixty Grit said...
This comment has been removed by the author.
Michael said...

Rialby: Yes, your in-laws would have to liquidate the two million in real estate to pay the tax, unless they had a liquid (and post tax) million to pay for the gain on transfer/death. But, comrade, the state could use that property for better purposes, purposes that your in-laws can't discern.

Comrade America's Politico thinks that making 250K puts one in the rich category. Comrade AP is an idiot a financial dunce and an underachiever. Plus an obvious low level lackey in the party.

MrBuddwing said...

America's Politico: This is why we must retain all three: House, Senate, and White House. Else we will suffer like other countries.

"Must retain"? I thought you said a Democratic victory in the midterms and in 2012 was a shoo-in!

(Not expecting a response from AP, since he's one of those hit-and-run posters.)

Word verification: unhumels.

jaltcoh said...

He states that if he can make twice as much money -- $2,000 instead of $1,000 -- he will have twice as much incentive to work. It's not that simple, as the economist Robert H. Frank, has explained (also in the NYT). Earning less can be a disincentive or an incentive to work harder. He has explained how it can be a disincentive. But it can also be an incentive: if he needs to work twice as hard to make $X, and he really wants to earn $X, that could motivate him to work twice as hard -- to earn $X! The motivation is just as straightforward as what he describes in his column.

So there are effects going in opposite directions. You can't deduce which effect is stronger through pure logic. Of course, we could just trust him that he has experienced that the disincentive is more powerful than the incentive, but should we just believe him about this? Not when he has such a transparent incentive to distort his experience.

Again, I'm pretty much paraphrasing Frank here. He said:

"The surface plausibility of trickle-down theory owes much to the fact that it appears to follow from the time-honored belief that people respond to incentives. Because higher taxes on top earners reduce the reward for effort, it seems reasonable that they would induce people to work less, as trickle-down theorists claim. As every economics textbook makes clear, however, a decline in after-tax wages also exerts a second, opposing effect. By making people feel poorer, it provides them with an incentive to recoup their income loss by working harder than before. Economic theory says nothing about which of these offsetting effects may dominate."

1jpb said...

Riably,

Your competitors will thank you when you decide to not compete for more work.

And, it's a win-win because (let's assume you could have been making $350M) you won't need to pay an additional $4,500 (or so) in taxes for the extra $100M in income, but someone else will be able to pick up an additional $95,000 (or so), so they can buy a Panamera, but not the turbo :(. Everybody's happy!!!!

And, regarding the business: ownership of the company can be split between the heirs before the principles die. I know with absolute certainty that this process was workable for a $60MM "small business" with a lot of real estate and other assets. So, I'm sure it can be done when $2MM is on the table. Don't feel so bad for rich folks, there are plenty of loop holes.

BTW, I use M (as a lot of financial folks do) to mean 1000, like the roman M. When used this way MM represents 'million.' I noticed that you seem to be using M to mean million, presumably you (like many folks) use K for 1000.

Michael said...

1jpb: The story you linked to is meaningless. During the many years covered in the study many corporations made no profits. No profits no taxes. The "statistics" are noteworthy only because they can be used by lefties to make invalid points about the evil corporations. And good on you if you want to pay higher taxes. If increasing your bottom line by 12 percent or so to stay even is such a no-brainer you are one wicked good business person.

1jpb said...

should be rialby

ddh said...

Let me introduce some ideas to 1jpb, who seems scandalized that corporations are not paying taxes. Of course, corporations have to be making profits to pay corporate income tax, although they can be hit by other taxes even without making a profit.

(1) Only people pay taxes.

(2) Corporations only collect taxes for the government from their customers, their employees, or their shareholders. As a result, customers pay higher prices, employees earn lower salaries, and shareholders receive lower dividends or lower share prices. The split depends on how sensitive to price are the demand for the corporation's products and services are to price changes, the supply of labor, and the mobility of capital.

(3) The government doesn't know who actually pays corporate taxes, and neither do you, whether you are the customer, the employee, and the shareholder. For you, the tax is hidden--that's why governments tax businesses.

(4) Not all countries tax businesses. Those that do handicap companies that compete against imports from countries that don't or that tax businesses at a lower rate.

(5) The upshot of corporate taxes is that customers buy fewer goods and services, fewer workers are hired, and corporations have less capital to invest.

(6) Corporations are less likely to repatriate less taxed foreign profits to have them taxed more heavily. They are more likely to invest these profits abroad, hitting their home economy even more heavily.

rcocean said...

Yes, don't tax the rich or the Corporations because that hurts EVERYBODY.

Glad Rich people are so damn generous and civc-minded to help the rest of us out by keeping their taxes low.

I just hope the currency speculators, trial lawyers, coupon clippers, Hedge fund operators, and well-to-do government employees don't take a day off - we'd all be ruined.

1jpb said...

You corporate apologists are lame.

It's undeniable that corporations use loop holes (often written by the corporation's lobbyists), deductions, complex sub-corporation interactions that generate transactions melt away profits (on paper) and foreign subsidiaries or relocation to avoid paying taxes. It's not simply that these companies weren't profitable. And, it's obvious that these companies need the US, we are the best market in the world. And, yet we act like we're a fifty year old hooker who's thankful to make five bucks while taking it the back door.

And, don't you folks remember how, not long ago, you cons were all excited about the great taxing policies of Ireland and Russia. We were supposed to follow their low business, and flat taxing ways. Well, now those countries are in worse messes than we are.

Yes, taxes suck, but they're never going away. Get over it.

Anthony said...

Why doesn't he gift the money to his children which he and his wife can do (up to $26,000 per year tax free, up to $1,000,000) without having to worry about the estate tax. Also, why doesn't he mention that the first $3,000,000 of his estate would not be taxed?

Additionally, most people don't have extra opportunities to make income each year that they choose to turn down for tax reasons. Most Americans don't have the luxury of turning down extra income. That fact alone is enough to convince me that I should not feel sorry for this poor professor's conundrum.

Mark said...

"Your competitors will thank you when you decide to not compete for more work."

Well, this argument makes sense if you assume that "work" is a fixed quantity.

The analogy is one dead zebra to x number of lions. Fewer lions, more dead zebra per lion.

(This, by the way, is the basic flaw in Marxism, which assumes a fixed amount of "wealth" that is distributed through the population.)

This isn't how economies really work. Wealth is created all the time. Anyone who takes some lumber and makes a chair has created wealth; the wood isn't, in fact, a zebra, and the chair can be used by a knitter who knits for 50 years, making clothes that keep her family warm for generations. (The sheep aren't zebras either.)

The more modern term for this paradigm is productivity, and productivity is by no means a fixed quantity in an economy.

Mankiw is making the case specifically that taxing the very comfortable (which he acknowledges describes himself) will decrease overall productivity, and that there are downstream consequences to this effect.

Sure, if a magazine needs an article, and decides that Makiw is available, there's always America's Politico, America's Politico gets a gig and writes an article. But I would posit that the final product would be poorer. Hence, lower productivity.

By the way, 1jpb, are you still driving that Yugo?

Maguro said...

Incentives affect economic decisions at the margin? That's just wingnut crazy talk, man.

AJ Lynch said...

What a clear, eye-opening article that is! Prof. Mankiw must be a fantastic teacher. Too bad the doctrinaire libs here [PB&J, Jaltcoh for example] are too close-minded to get his point [If you tax something, you get less of it].

Michael said...

Anthony: Sorry to tell you but the tax on estates will exempt only the first one million from taxes. After the new year.

Also, the professor was not asking for your sympathy only trying to get you to note that tax policy has consequences.

The smartest man ever to hold the presidency admitted that raising capital gains would reduce revenues to the federal coffers. But that man, the smartest man ever, our current president, noted that raising revenues was not the point, only fairness was the point.

By the way, as the rants continue about the "widening gap in income" the ranters would do well to meditate on the splendid outcomes of very narrow income gaps in the countries of N. Korea and Cuba.

Dust Bunny Queen said...

the topic turned to her parents who have an estate worth more than $2M - all in real estate owned as part of a very small business.

@ Rialby

Family Limited Partnership (FLIP)

Dust Bunny Queen said...
This comment has been removed by the author.
Dust Bunny Queen said...

Also, why doesn't he mention that the first $3,000,000 of his estate would not be taxed?


Because we have no idea what the Unified Exemption Credit will be in the future. Plus they keep messing around with basis.

For the year 2010, "step-up" will be replaced by "carry-over basis" rules. Carry-over basis generally means the basis of inherited property remains the same as it was for the deceased owner; which potentially increases the amount of gain (and tax) when the property is sold. When property is inherited, the heir can choose to take a "step-up" in basis for only $1.3 million of the property. For any amount inherited over $1.3 million, the heir's basis will be the smaller of the deceased owner's basis or the date-of-death-market value. The basis of property passing to a surviving spouse can be increased by an additional $3 million.

Basis of property given to the decedent by someone other than his/her spouse within 3 years of death cannot be increased


So who the hell knows? We can't plan. No one can make plans.

peter hoh said...

DPQ, doesn't the FLIP work if the family wants to keep the business working and generating income? Sounded like the siblings wanted to cash out rather than run a business.

Cedarford said...

Don't buy this shill for the rich one second.

It is not like Bush's 25-38% tax cuts for the rich made them work 25- 38% harder, better, and more ethically than they did in the bad old days of Clinton in that nightmare out of Atlas Shrugged as all the corporatist "Doer-Folk" sat on their asses.

And no one except Mankiw, because he is paid fat honorariums to say so - believes the 100% tax cut on hedge funds made our hedge funds the envy of the world before taxpayers had to bail them out.

Mankiw's other belief that astronomical pay for America's CEOs makes them 6 to 16 times better than their counterparts in Germany, Sweden, China, Japan, Singapore???

More bullshit.
You tax the small business owner, the choices are would be to work less, let rivals beat them out - or work as hard or harder and put profits into growing the business and creating jobs vs. that two week family ski trip to Switzerland..

1jpb said...

I encourage all of the cons in the country (assuming that make more than $200/250M) to live by your Galt philosophy.

You all stop working in your respective fields the minute you hit $200/250M of taxable income.

Then we can test the Galt theory v. my theory.

You all think that nobody will be motivated to find a way to satisfy the customer demand that results from the vacationing/maxin-relaxin Galters.

I think that entrepreneurs will take advantage of the available work opportunities to further enrich themselves: I know I will.

Time will tell.

AST said...

I'm dubious about the idea that a business owner can really control his income that precisely, unless he's in field where he can stop accepting new business. However, he can hold off expanding, hiring new workers, or buying new equipment or improving benefits for his employees, because he has to pay more of his own profits to the IRS or because he doesn't know what his costs will be next year or two years out or through 2014 when Obamacare is in full effect.

Michael said...

1jpb: You aren't a very good pretend business person. Really, it is a bit cringe making to read your posts on competition, incentives, etc. You are trying, hard, but it is so lame you really aren't fooling anyone. Please stop. I am embarassed for you.

Michael said...

AST: If you are a cash basis taxpayer you can ask a customer to delay paying until the next tax year. Consultants, accountants, lawyers, brokers, virtually anyone who works on his own has considerable flexibility on maneuvering income.

Cedarford: Name a hedge fund bailed out by the Government.

1jpb said...

Michael,

What sort of business is it that you do? All you've mentioned in the past is that you pay more than four million a year in taxes for your personal tax returns.

Methadras said...

@American Politico, you know this is the first time that I've never quoted someone I'm responding too and it's because what you just wrote is so delusional as to be on the level of hallucinatory insanity. Seek help immediately. Your complete tooldom has been reached.

Jason said...

Ever notice that these idiots who start yapping about "corporate loop holes" and "complex sub-corporation transactions" never seem to be able to name any?

Heres a clue-bat for you, jpb... you can't just "award" heirs large stakes in closely held businesses. There are tax consequences for that, and the IRS is on careful watch for transfers to related parties for below fair market value.

But you, of course, didn't know that.

And not everyone is equally liquid, anyway. Indeed, it may well be easier for a lot of 60 million dollar businesses to do that than a 2 million dollar business, because of the availability of credit.

Dust Bunny Queen was on the right track when she said "family limited partnership."

Oh, and large amounts of permanent life insurance. This will allow heirs who want to keep the business to buy out their siblings who would rather have the cash.

jimbino said...

I went Galt during the Vietnam War. No marriage, no breeding, no insurance, no new cars. Starting at $0, but with financing I bought houses, fixed them up, sold them, paid no FICA or income tax and only minimal CG tax on sales.

I've had 38 weeks (unpaid) annual vacation on average since I started my professional career 42 years ago this month. I've worked, almost always independently on a contract basis throughout the US and Europe and in Latin America.

I now have homes in a Colorado ski resort, in Rio de Janeiro and in Austin, TX. If I hadn't studied on full scholarships, I'd be real sorry to have wasted my time and serious money gaining my Law degree and my graduate degrees in Physics and Theology.

I love Mankiw. He may be smart, but he works more than I do in a place a hell of a lot less fun than Colorado, Austin and Rio de Janeiro. And I bet he only speaks English.

Judy said...

So happy that Mankiw learned a lesson from the U of C law professor and didn't mention that he would have to lay off some household staff if taxes increased.

Jason said...

jimbino,

If you worked on a contract basis, and you are a U.S. resident, and you paid no income tax, I'll bet there are some very nasty people in cheap suits who would like to have a few words with you.

Get a good lawyer.

Terry said...

There seems to be some ignorance going on here on what makes a small business person grow their business. I've seen the phrase "work harder" used more than once.
What keeps a business from growing is a barrier. Generally the marginal cost per unit decreases and then begins to increase until some barrier is overcome (number of parking stalls, need to hire more workers to stay open longer hours, etc.). The idea that the small business person will simply "work harder" to make up the difference if their taxes are raised is delusional.
If the small business person sees their income cut by increased taxes they must invest more in their business to grow at the same time that more of their income has gone to pay taxes. Return is reduced, risk is increased. Business don't grow.

rcocean said...

I just hope the stock market speculators, real estate speculators, lawyers, Trust Fund Babies, Wall Street Investment fund managers, Journalists, Bank CEO's, K street lobbyists,College Presidents and Non-profit employees don't go "Galt" on us.

I don't know how this country would function without white-collar millionaires who sit at their desk all day and produce nothing but paper and hot air.

Rialby said...

To be clear, I do not own a small business today. My wife and I both work for well-established businesses. My choice is 1) to continue using my specialized skills working at a high wage for a large business or 2) leave and take a lower paying job that will free up hours to spend with my family.

If I do so, my company will be required to go find someone else at a high cost to replace me - they will have to pay a recruiter, relo costs, training costs, ramp costs, etc. This is money that they could have spent elsewhere but then the government destroyed my incentive to make 250k or more.

Someone has to pay for that.

Michael said...

Terry: You are wasting your breath trying to educate people who are willfully ignorant of business. Here is 1jb asserting I have said I pay more than 4 million in personal taxes. On top of being a fool he is a fabulist or the stupidest variety.

rcocean said...

I forgot to mention all the hard working millionaires who provide services and goods to the Government. Last I looked the State/local/Fed Government spent 30 percent of GDP.

Lot of millionaires getting rich off Uncle Sam. But don't go 'Galt' on us fellows. We'll cut YOUR taxes and pay your salary/income with other people's tax money.

Michael said...

rcocean: Brilliant. Then you can raise your own capital to start or own a business. I would be curious to know how you would propose to go about that without using the capital markets, but then I suppose your money rains down from the government in one form or another, or you work for someone who pays you what you are worth. Exactly how much you are worth.

Bruce Hayden said...

I'm dubious about the idea that a business owner can really control his income that precisely, unless he's in field where he can stop accepting new business. However, he can hold off expanding, hiring new workers, or buying new equipment or improving benefits for his employees, because he has to pay more of his own profits to the IRS or because he doesn't know what his costs will be next year or two years out or through 2014 when Obamacare is in full effect.

He doesn't really have to control it that closely - the law of large numbers kicks in and the adjustments are averaged out. So, one guy may end up too high, and the next too low. But with 300 million people, it averages out.

former law student said...

Greg may not understand how corps pay taxes in practice.

No, I'm sure Professor Mankiw is smart enough to understand that in Abstractland, corporations pay 35% Federal income tax, while in reality they pay much less. The great Eric Blair explained the phenomenon:

The power of holding two contradictory beliefs in one's mind simultaneously, and accepting both of them....To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary.

But if he wants to invest the money for his children, why transfer the funds on his deathbed? Why not put the money in trust for the tots, or buy them some sort of insurance swindle?

Other gross assumptions Mankiw made: that a 52 year old man will live another 30 years, and that he will not end up giving his estate to a nursing home for the last decade or so.

1jpb said...

Jason,

Both my example of the company w/ a value of $60MM and the way an umbrella corporation can set multiple companies to do business w/ each other to limit taxes are related to the same business.

Regarding the company's ownership: there are two children who both own 49% of the company, but they don't have any day to day or control or decision making abilities. The actual control and remaining 2% ownership remain w/ the father, who started the company. I have no idea what provisions in the tax code were used in this situation. But, I know that it is legal is legal, because it's already been done.

Regarding the umbrella company: overall the company has a lot of facilities, but there are separate companies for different plants, trucking, and management aspects of the business. These sub companies all sell back and forth to each other as well as to actual customers.


Michael,

Maybe you forgot that (when I was talking about being familiar w/ folks making 2MM a year) you wrote that your tax bill was more than twice what I was talking about for income.

It looks like you have a sensitivity for hedge funds. Maybe that's what you do. If so, (assuming you're 2 (ordinary income) and 20 (carry income), and you've had good returns for clients) you must be making more than $18.5MM per year. That's real money.

Maguro said...

I just hope the stock market speculators, real estate speculators, lawyers, Trust Fund Babies, Wall Street Investment fund managers, Journalists, Bank CEO's, K street lobbyists,College Presidents and Non-profit employees don't go "Galt" on us.

Right...nice collection of populist soak the rich buzzwords. But Mankiw said nothing about "going Galt", he just noted that tax code changes affect economic behavior and provided an example from his own life. His point applies just as well to manly businesses like crab fishing and logging as it does to sissified economics professors like Mankiw.

Michael said...

1jpb: It is "carried income" not "carry income."

former law student said...

The fact that I can get under the cap makes this more attractive to me.


Right, because I would always give up the opportunity to earn an extra dollar if it cost me an extra nickel.

former law student said...

Her brothers have been banking on getting their hands on those assets for years.

The very idea of redistributing wealth from those who have earned it to those who have not lifted a finger to earn it appalls me, as it should every right-thinking young American.

Bruce Hayden said...

It's undeniable that corporations use loop holes (often written by the corporation's lobbyists), deductions, complex sub-corporation interactions that generate transactions melt away profits (on paper) and foreign subsidiaries or relocation to avoid paying taxes. It's not simply that these companies weren't profitable. And, it's obvious that these companies need the US, we are the best market in the world. And, yet we act like we're a fifty year old hooker who's thankful to make five bucks while taking it the back door.

Yes, well, the Democrats have as much, if not more, culpability in terms of tax "loop holes". It is just a small part of their crony capitalism.

Of course, if the U.S. followed the rest of the world in having low tax rates for corporations, there wouldn't be such an industry in D.C. lobbying for special treatment for this industry or that one.

Not sure what a "sub-corporation" is (and that is with both MBA and JD degrees). Is it similar to a mini-corporation? A partial corporation? An underground corporation?

As an interesting side to this - a couple weeks ago we had a CLE on Nevada IP holding companies - where companies incorporate subsidiaries here in Nevada because there is no corporate income tax (or personal income tax either) to hold their intellectual property (patents, copyrights, trademarks, etc.) It works fairly well to shield their income from many states' taxes, but mostly if you do it before your portfolio gets very big. But, not surprisingly, there are a number of states, notably CA next door, where this doesn't help. Their tax collectors, while not as sophisticated as the IRS, still manage to collect their share (but, hopefully, not more than their share). I can send anyone who is interested a link to the people providing this service - you usually actually have to make the corporation do something, and that is where they come in.

Terry said...

Former Law Student wrote:

The very idea of redistributing wealth from those who have earned it to those who have not lifted a finger to earn it appalls me, as it should every right-thinking young American.

Unless it is a person giving their money voluntarily to the person or group they wish to. It's called "property".
Are you a current custodian, Former Law Student? Gee whiz you seem dense.

former law student said...

2) leave and take a lower paying job that will free up hours to spend with my family.

What is this magic job that will sustain a family on a 40 hour workweek?

former law student said...

Unless it is a person giving their money voluntarily to the person or group they wish to. It's called "property".


But they never give their property away voluntarily. The recipient doesn't get it till the donor is dead.

We don't let the dead vote -- why should we let the dead have a say in what happens to their property?

former law student said...

Is it clear to everyone that the dead lack agency? You can't invite them for dinner, they're useless at playing cards, and they can no longer help you wrestle in a new water heater.

Bruce Hayden said...

Regarding the umbrella company: overall the company has a lot of facilities, but there are separate companies for different plants, trucking, and management aspects of the business. These sub companies all sell back and forth to each other as well as to actual customers.

Ok, now I see what you meant by sub companies. You are talking about subsidiaries.

But keep in mind that you usually have to file a consolidated income tax return for American parent and subsidiary companies if there is sufficient common ownership, etc.

Also, transfer pricing is carefully looked at when you are talking related foreign companies. The burden is on you to show the IRS that the transfer prices are essentially equivalent to the arms-length prices.

The real scandal right now though is that because we have a fairly steep corporate income tax, and much of the rest of the world does not, that a lot of companies do not repatriate earnings from their foreign subsidiaries.

Every time we give them a tax holiday for repatriated earnings, hundreds of billions of dollars flow back into this country. And, the estimate right now is that if this were done, it would be nearly a trillion dollars - which is approximately the size of the "stimulus" bill that did essentially nothing except give a bunch of government workers raises and bolstered their retirements. A tax holiday for repatriated earnings would be far more effective than that, since it would be flowing into the productive sector, and not the public sector, of the economy. And, it would be free, since that money isn't coming back any other way.

Terry said...

We don't let the dead vote -- why should we let the dead have a say in what happens to their property?

Good God. It is called an "estate". And who is this "we" you speak of? A bunch of other Former Law Students?
Maybe you'd like to stop a parent from giving their kid ice cream when so many in the world lack for bread?
Seriously, are you challenged in some way, Former Law Student? Maybe a non-native speaker of English?

rcocean said...

Right...nice collection of populist soak the rich buzzwords. But Mankiw said nothing about "going Galt", he just noted that tax code changes affect economic behavior and provided an example from his own life. His point applies just as well to manly businesses like crab fishing and logging as it does to sissified economics professors like Mankiw.

Here's an idea my friend. You could take all the econ professors and law professors (sorry Althouse) and some of the other groups mentioned and put them in a tied up sack and dump them in the ocean, and we'd all be richer NOT poorer. Dummies like you can't understand the difference between people who CREATE wealth and those who simply consume or manipulate others to get/stay rich.

If you're a selfish A-hole who doesn't want to pay taxes, good for you, just stop insulting my intelligence by telling me how making the rich pay taxes HURTS EVERYONE! or is IMMORAL! or ITS CLASS WARFARE or don't tax the rich or THEY'LL GO GALT.

Judas Priest, get a brain.

Maguro said...

We don't let the dead vote -- why should we let the dead have a say in what happens to their property?

First of all, the dead can and do vote. Mostly in diverse, vibrant and heavily Democratic locales.

Second, are you suggesting that people should have no say in what happens to their property after they die? Everything you worked for belongs to the state the second you kick the bucket? Really?

Maguro said...

If you're a selfish A-hole who doesn't want to pay taxes, good for you, just stop insulting my intelligence by telling me how making the rich pay taxes HURTS EVERYONE! or is IMMORAL! or ITS CLASS WARFARE or don't tax the rich or THEY'LL GO GALT.

You're an idiot. None of that nonsense was in the article.

former law student said...

Good God. It is called an "estate". A French word, dating back to the Norman Conquest. Why should we care about it today? Was the principle of inheritance ordained by God?

that people should have no say in what happens to their property after they die? I'm looking for arguments in favor of giving the dead agency over the property that they can no longer own.

Ritmo Brasileiro said...

Who is this Thomas Jefferson socialist and what did he have against aristocracy anyway?

The pencil pushers are getting nervous.

Bruce Hayden said...

If you're a selfish A-hole who doesn't want to pay taxes, good for you, just stop insulting my intelligence by telling me how making the rich pay taxes HURTS EVERYONE! or is IMMORAL! or ITS CLASS WARFARE or don't tax the rich or THEY'LL GO GALT.

Well, I would call the people stealing the hard earned money of taxpayers through taxes at the point of a gun the selfish ones.

So, it all depends on your point of view.

You are entitled to give the government as much of your money as you wish, as long as it is above the legal minimum. Indeed, there is apparently a special fund for just that purpose. The place where I have a problem is when you and your ilk force me to pay more than what I consider my fair share of my hard earned income, in the name of "fairness" and spreading the wealth around.

Ritmo Brasileiro said...

What YOU consider your fair share, Bruce? I didn't realize this was an individual decision but one you've got to convince a majority of the citizens to agree with you on.

Should I be looking out for airplanes being flown into Texas buildings now or something?

bgates said...

Is it clear to everyone that the dead lack agency? You can't invite them for dinner, they're useless at playing cards, and they can no longer help you wrestle in a new water heater.

So their stuff should go to the government, which does all of those things. Right?

Was the principle of inheritance ordained by God?

4.11 "Allah enjoins you concerning your children: The male shall have the equal of the portion of two females; then if they are more than two females, they shall have two-thirds of what the deceased has left, and if there is one, she shall have the half; and as for his parents, each of them shall have the sixth of what he has left if he has a child, but if he has no child and (only) his two parents inherit him, then his mother shall have the third; but if he has brothers, then his mother shall have the sixth after (the payment of) a bequest he may have bequeathed or a debt; your parents and your children, you know not which of them is the nearer to you in usefulness; this is an ordinance from Allah: Surely Allah is Knowing, Wise."

The Bible has some commentary on the subject too, but I thought you'd be more deferential to God as presented in the Koran.

Ritmo Brasileiro said...

Damn was that abstruse, pointless and arbitrary. No wonder their only contribution after translating Aristotle was the invention of algebra.

Ritmo Brasileiro said...
This comment has been removed by the author.
rcocean said...

The place where I have a problem is when you and your ilk force me to pay more than what I consider my fair share of my hard earned income, in the name of "fairness" and spreading the wealth around.

Well guess what Bruce, taxes are the price we pay for Civilization (pretty catchy huh? I just made that up).

And like 95 percent of Americans, I'm not rich. And I don't think I should pay the same tax rate as Bill Gates especially considering that after my mortgage, food, child expenses, car, etc. my disposable income in 1/10,000 of his. Now YOU think differently, I hope its because you're too are rich - because otherwise you're an idiot.

rcocean said...
This comment has been removed by the author.
Ritmo Brasileiro said...

You don't understand RC. If people like Bruce aren't convinced that they could become the next Bill Gates, then there wouldn't have been a Bill Gates in the first place.

I'm pretty sure when little Bill was tinkering with transistors in a garage his first thought came down to the top marginal tax rates of the 1970s and how just and right they were.

former law student said...

The Bible has some commentary on the subject

Indeed. Ecclesiastes Chapter 2:

18 I hated all my toil in which I toil under the sun, seeing that I must leave it to the man who will come after me, 19 and who knows whether he will be wise or a fool? Yet he will be master of all for which I toiled and used my wisdom under the sun. This also is vanity. 20 So I turned about and gave my heart up to despair over all the toil of my labors under the sun, 21 because sometimes a person who has toiled with wisdom and knowledge and skill must leave everything to be enjoyed by someone who did not toil for it. This also is vanity and a great evil.

Seven Machos said...

why should we let the dead have a say in what happens to their property?

Well, as everyone knows, and which was on my bar exam, for which I have never been happier that I forced to learn a rule that I couldn't stand learning, we don't let "dead hands" rule us, but we do recognize that people ought to be able to dispose of their property as they wish upon their deaths. Thus, a life in being plus 21 years is the upper limit of time that the desires of dead people can have a hold on us, the living.

Jason said...

Wenn ich die Worten "Nevada Corporation höre ... entsichere ich meinen Luger.

Stephen A. Meigs said...

jalcoh is right. There is no reason to think that taxing the rich at a high level will discourage them from work. High taxes will mean that the rich will be poorer, and the poorer one is, the more one needs money, which encourages one to work harder. If the tax rate one pays changes with time then naturally one will prefer to work when the rate is low, but that is just a short-term consideration. Lowering tax rates for a while for the rich might make them temporarily more willing to work, but after the rates return to what they were before, they will be less willing to work than if the rates had never been lowered, because money will be worth less to them on account of their having gained wealth.

Higher taxes for society as a whole is likely to lead to decreased incentive to work assuming the government uses the money to give people what they need. The more government gives its citizens what they need, the less people need to work. But since government mostly doesn't give rich people more than it gives poor people, government spending will be a negligible disincentive for rich people to work. Assuming the government spends the money it takes from the rich on useful things people need, the main long-term effect incentivewise from higher taxes for the rich is that it causes the non-rich to work less hard, rather opposite what the idiotic article by the Harvard professor suggests.

rcocean said...

The top tax rate in the 80s was 50% - yet the inventor of MS DoS and Bill Gates didn't go "Galt".

The Top Tax rate in the 60s/70s was over 75% - yet IBM/Xerox still invented the PC and and GUI. Guess they were made of sterner stuff than John Galt.

Kirk Parker said...

Oh, good grief, Jason--it's Browning, not Luger.

(Crappy translation, too; you need to omit 'die Worte'.)

Other than those nits, pretty funny!

Jason said...

Yes, I deliberately took "Browning" out and inserted Luger because it sounded better.

I associate Browning with .50 caliber machine guns and water-cooled automatic weapons, not pistols. I realize it was commonly used as a generic reference for pistols in the 1920s and 30s, but to the modern ear, Luger sounds better.

Seven Machos said...

As he proved here once before, Stephen has no idea what he is talking about -- not least because he fails to understand that tax rates are marginal. The highest tax rate is not the tax rate on all income, just income above a certain amount.

Anyway, here's a pretty good rule of thumb: people who use "one" when they talk (e.g., "the more one needs money") are virtually always idiots. They dress up their language in so much foppery because, deep down, they know they are merely posing and have no actual clue.

Kirk Parker said...

Jason, I would submit that the average "modern ear" does not know the quote at all, especially not in German.

rhhardin said...

Harvard hired a moron.

Money he doesn't need winds up saved and used as capital, either directly by him or indirectly by the bank he puts it in.

Capital buys equipment that makes other workers productive enough to earn more, or even to get hired.

Money that the government taxes away never winds up as capital. It winds up as current consumption, exactly what he points out he doesn't need it for.

So an increase in the tax rate reduces capital, and that sinks the economy by making workers less valuable than they could have been.

Less valuable workers are paid less or aren't hired in the first place.

Pogo said...

I'm with rhhardin here. His choice of illustration for the effect of higher taxs is off-putting, and misses the more important problem by a mile.

It makes the nation poorer than it should have been. See: Cuba.

PoliticallySpeaking said...

I am calling "shenanigans" on Professor Mankiw's math.

1) To make a comparison between the scheduled tax cut expiration and no taxes is ridiculous. Imagine two kids bragging about how high they can jump - one declares "without gravity I could reach the Moon!"... what relevance is that theoretical lack of gravity/tax to reality? Making a comparison between a no-tax world and an incrementally higher tax world when debating the merits of that incrementally higher rate fails Logic 101.

2) The Professor also compares the interest he can make in that imaginary no-tax world to the full tax rate in the real world. Any comparisons must be made using realistic figures - what are the potential returns at the current rate vs. the rate if the Bush cuts expire as planned? The Professor just failed his make-up test in Logic 101.

3) The Professor's article concerns the expiring Bush tax cuts, yet when it is convenient he adds other taxes into the mix, such as estate taxes and Medicare rates. Again - if he is debating the merits of the Bush rates expiring, all computations should be limited to the rates in effect with and without the expiration. The Medicare rates will be the same regardless of the Bush rates expiring. And as mentioned earlier, a no-tax world is irrelevant.

The Professor's main argument is that higher taxes create disincentive to work. Economics 101 teaches that this is correct - the incremental earnings at the higher rate are less than at a lower rate. However, Professor Mankiw fails to provide a convincing argument due to his horrid logic failures and propensity to add or discard taxes to bolster his computations. My guess is that any of his students who tried to pull the failed stunts the Professor pulled would get a failing grade.

Michael said...

PoliticallySpeaking: I recommend you read the article again, more slowly this time and perhaps with a highlighter. He is making a comparison at the margin with additional earnings taking into account only the difference between the current, Bush, tax rate and the higher, Obama, tax rate. He does this so that the dimmest can understand. He is only providing an example of what the additional tax on an additional thousand dollars would imply. Does he take into account other taxes when calculating the future, post estate tax, effects of other taxes? Yes. Does that undermine the premise? I think not.

DaveW said...

...trying to educate people who are willfully ignorant of business...

That's the part that gets me. I understand that most people have little knowledge about the way businesses work and make decisions. It's the lack of interest in understanding this fundamental component of our economy that amazes me.

Especially Obama and the rest of that bunch in the White House. Internet commenters are one thing, but Obama is the president and his reelection prospects are tightly bound up with the decisions businesses make. He apparently thinks hiring is a simple decision based on, well nothing more than if a business wants to hire or not in the abstract.

Even if you were objectively anti-business and (other) people making money - as I am dismayed to learn Obama is and a surprising number of democrats are - wouldn't you want to understand their motives? This willful ignorance baffles me.

Dust Bunny Queen said...

Is it clear to everyone that the dead lack agency? You can't invite them for dinner, they're useless at playing cards, and they can no longer help you wrestle in a new water heater.

Ah....but they can vote and recieve stimulus checks.

So, why can't people decide who to give their property to.....even when dead. Gee....I seem to recall something about wills in my CFP training.

Dust Bunny Queen said...

The Professor's article concerns the expiring Bush tax cuts, yet when it is convenient he adds other taxes into the mix, such as estate taxes and Medicare rates

Evidently you think that consideration of ALL taxes and ALL economic factors, especially including the time value of money, should be ignored when making economic decisions?

Michael said...

Dave W: The willfulness comes, I think, from a defensiveness borne of the liberal belief that they are smarter than you or me. When confronted by a topic about which they know nothing but have strongly held beliefs fostered by the media and their educations they stiffen up. It is almost as if they believe if they learned something their entire belief system would crumble. And it would, so I grant them that. It infuriates me that they maintain their smugness in the teeth of their own stupidity.

Stephen A. Meigs said...

Seven Machos--

It is a fair point that increasing marginal income taxes on the rich will decrease their marginal take-home income by a fraction that is greater than the fractional decrease in their take-home income. Rough calculations indicate to me their take-home income will decrease by a fractional amount corresponding to the average increase in marginal tax rates (averaged over lower before-tax income levels) divided by the prior average in the marginal tax rates. So unless taxes are already very regressive (more regressive than present), rich people fairly near the boundary line between the highest tax bracket and the one next to it probably would be discouraged by higher taxes from working harder, assuming no other considerations. So, for instance, since the cutoff in U.S. is around $400K, your considerations might be mostly relevant for people making less than $1million or so, assuming that nothing else be involved.

But of course something else is involved. Much if not most of the money rich people make is investment income, taxing which amounts to a pure decrease in income that is not associated with a decreased desire to work. The notion of the Harvard professor that taxing this wealth is something that will discourage rich people from making money as though earning 3% on investments rather than 5% is tantamount to turning a goose that after a few generations of special compounding will lay golden eggs for the rich into a goose that after a few generations will just lay normal ones is entirely contrary to common sense and the sort of crazy notion that afflicts people too cozy with those (like most of the leaders of our financial system) whose livelihood is to sell investments based on similar pyramid principles. Mostly investments are worth what the investments put out, which can't be increased as if by compounding by throwing money at them. There is way too much investment already. More investment will probably mostly just yield new shinier strip malls to make our perfectly adequate strip malls go vacant. Having rich people throw more money into investments is not going to magically cause these investments to make an amount of money that increases year-to-year in compound interest fashion. There's only so much that (mostly not wealthy) productive people can be made to do that people want, which has to do largely with their capacity for labor and innovation, neither of which are easy to increase by money; actually, making workers less well-off might in the long run make them less efficient as they have less time to devote to education, child-rearing, etc. For a time, as now, the government can prop up the prices of the chickens that banksters assure us are golden-egg layers by stealing money from ordinary people to buy the chickens at what the banksters assure us they're worth and by selling insurance that pays out should a golden-egg laying chicken for some strange reason not lay golden eggs, but even that must end at last.

bagoh20 said...

The problem with taxation is that it takes money (resources) from everyone, and gives it to a group of uniquely disqualified people to use for their own purposes.

If you find politicians to be good stewards of your money,then send them more voluntarily. Even leftists don't believe this, yet they fight for it anyway.

The rich may not always spend their money well, but they are a hell of a lot better at it than a bunch of failed lawyers trying to get wealthy by manning the soup ladle for the rest of us.

Jason said...

Stephen,

That's some weapons-grade stupid right there.

c3 said...

OK, I will be affected by the tax changes. The point that seems to get lost is:
it will change my behavior.

There is this sense that if you're in the top 5 percent, you won't miss it. You're life will go on but America and America's middle class will be that much better off.

Well, I will change:
1)I will work harder at investing in tax free vehicles.
2)I will spend less
3)I will feel more vulnerable about my mortgage payments for my seriously underwater house.
4)Feeling less margin, I'll be more inclined to hunker down.
5)Will I work harder? For me that would be, will I seek sources of additional income? I can't say.

But please, lets be clear; I will notice it and I will change

Dust Bunny Queen said...

Much if not most of the money rich people make is investment income, taxing which amounts to a pure decrease in income that is not associated with a decreased desire to work. The notion of the Harvard professor that taxing this wealth is something that will discourage rich people from making money as though earning 3% on investments rather than 5% is tantamount to turning a goose that after a few generations of special compounding will lay golden eggs for the rich into a goose that after a few generations will just lay normal ones is entirely contrary to common sense and the sort of crazy notion that afflicts people too cozy with those (like most of the leaders of our financial system) whose livelihood is to sell investments based on similar pyramid principles. Mostly investments are worth what the investments put out, which can't be increased as if by compounding by throwing money at them

Wall of text.

Seriously. I'm unclear as to what your point is.

First of all, you and everyone else need to make the distinction between high income earners and being wealthy.

Many of the 'wealthy' have both high incomes and investment wealth that was either self earned, through smart management of their income or inherited. However, many many more in the so called wealthy tax bracket are high earners who cannot be exactly classified as wealthy.

Second: Higher taxes on income, whether from investments or work, will change the behaviour of people.

For instance. Right now many of my investment clients who are generally income orient investors, would be looking to reinvest their assets into bonds, REITS, dividend paing stocks, UITs etc. When interest rates are at an all time low, they are NOT investing into these vehicles because they know (and I tell them) that when rates go up eventually, they will have investments that will go down in value to the market and they will be stuck with these low rates for years. Short term rates.....you might as well use a coffee can in the back yard.

So where do they invest to avoid higher taxes and still get some income? Municipal Bonds? Maybe, but the reality of default in Muni Bonds is becoming more and more frightening.

REITs: some tax benefits, but....look at the real estate market, vacancies, bankruptcies, defaults. Nope.

The Harvard Professor was pointing out that at these low rates of return and HIGH taxation, multiple levels of taxation, and inflation over time, that even with compounding interest the real return on investment is negative.

If your real return on a higher investment or on a higher income is negative, the logical thing to do is to not waste your time in investing or in working harder or working more.

This is what people are doing now. Not investing. Sitting on their investments either in cash or in hard assets like gold and silver. They are not investing into their businesses. They are not working extra hard because the return on investment is nil.

Dust Bunny Queen said...

Gah....typos galore. To much work to fix it. Sorry.

Michael said...

Oh, and one more thing. I think that after the new year dividends will be taxed as ordinary income instead of capital gains. I do not think that it matters if you make over 250k or not.

Big Mike said...

"By making people feel poorer, it provides them with an incentive to recoup their income loss by working harder than before. Economic theory says nothing about which of these offsetting effects may dominate."

The emphasized sentence is what both jaltcoh and Stephen are missing. We are moving into an area where theory doesn't apply, so a reasonable person might want to move carefully. Of course "feel poorer" depends on previous economic decisions. I suspect that several of my neighbors are living right up to their income -- tax it higher and they have no choice but to work harder or default on their mortgage, have their expensive car repossessed, or some other sort of undesirable effect.

Many other people are not right at the limit, and Mankiw is one of them. He has options, and he will exercise them.

One also has to consider people who are salaried -- they have very limited ability to make more money by working harder. If they've survived one or more rounds of downsizing they're probably already working pretty hard.

As for me, I'm below the $250K limit but if I was up there then my response to higher taxes would be to trim back on discretionary spending. Less money for charities (and if there's less money for cancer research or poor people have to do with even less, that's Obama's problem and not mine), more doing my own repairs (and if the plumber I normally call goes under, that's Obama's problem and not mine), less going out to restaurants (and if my favorite restaurant doesn't hire another waiter or waitress because they can handle their tables with fewer staff, that's Obama's problem and not mine). I know this because Fairfax county property taxes have gone up and up and up, and that has been my response to date.

Dust Bunny Queen said...

I think that after the new year dividends will be taxed as ordinary income instead of capital gains. I do not think that it matters if you make over 250k or not.

Qualified dividends will no longer receive special tax treatment after 2010.

Non qualified dividends have always been taxed at your marginal rate.



Here is a link that explains it.

http://beginnersinvest.about.com/od/dividendsdrips1/a/dividend-tax-rates.htm

Qualified Dividends are

be paid between January 1, 2003 and December 31, 2010,

be paid by a U.S. corporation, by a corporation incorporated in a U.S. possession, by a foreign corporation located in a country that is eligible for benefits under a U.S. tax treaty that meets certain criteria, or on a foreign corporation’s stock that can be readily traded on an established U.S. stock market (e.g., an American Depositary Receipt or ADR),

and
the stock paying the dividend must be held for at least 61 days during the 120-day period beginning 60 days before the ex-dividend date and ending 59 days after the ex-dividend date.


So the upshot of allowing yet another provision of the Bush tax cuts to expire will be a massive movement from US Stocks etc as listed above to other investments that have the ability to pass through tax advantages.

We will probably see some massive dumping of certain US stocks.

Mutual fund managers and hedge fund managers didn't get to be where they are by being stupid.

Congress however.....that's another story.

Rich B said...

"The very idea of redistributing wealth from those who have earned it to those who have not lifted a finger to earn it appalls me, as it should every right-thinking young American."

Well, two things. Isn't this what most couples with children do for them until they are established?

Second, you are not redistributing the wealth. It's not yours to restribute.

There's nothing like a little envy to get the redistributionists all worked up.

Michael said...

DBQ: Thanks for clarifying the dividend treatment. Stated another way, then, the envious lefty commenters who are all for "the rich" paying taxes will be hit with a potentially massive increase in their own taxes on any dividends they currently receive. Alas, they probably never read their statements anyway.

former law student said...

c3 -- what will you spend less on?

I really don't understand why people who earn $250K a year would refuse the incremental effort to earn an extra dollar just because the government will want an extra nickel. Did they slack all through the Clinton administration?

Let's see the evidence that the Bush tax cuts made them work harder from 2001 to 2010 than they did previously. The best predictor of future behavior is past behavior -- all else is self-serving posturing.

former law student said...

If you tax something, you get less of it

And yet we tax earned income much more than we tax unearned income. Surely that provides an incentive just to sit around and live off our dividends rather than bust our asses.

Michael said...

FLS: Note that the tax on dividends (unearned income) will equal that of ordinary income upon the expiration of the Bush tax regime.

In difficult economic times like these when income is whacked by a tax increase you have to produce more at the margin to get back even. So, yes, people have to make more money (if possible) to maintain their current positions. To infer that all business people have to do to make more money is to work a little harder is to misunderstand completely. "Working harder" does not necessarily translate into more income. The Bush era was optimistic, business oriented and generally favorable to the individual over the state in matters of policy. The current administration is pessimistic, anti-business, and furiously putting in place regulations that have a negative impact on sentiment and profitability. Surely you understand how these things in combination are responsible for the current impasse where capital stays put, jobs are not created and owners bide their time.

former law student said...

The current administration is pessimistic, anti-business, and furiously putting in place regulations that have a negative impact on sentiment and profitability.

Yet the DOW is back up to 11,000. Somebody is hopeful about the future of business under the Obama administration.

Michael said...

The DOW is up in anticipation of a dramatic change of guard in the House of Representatives. If, by chance, the Democrats staged a comeback the DOW would fall off the map. The market likes the idea of "gridlock" and an ideologue whose ideas can stay put with him.

Synova said...

"Her brothers have been banking on getting their hands on those assets for years."

Rather than FLIP (or whatever DBQ mentioned) it might be a case where cashing out and taking a long world tour is a better plan.

Synova said...

All I know about running businesses is that the big ones have people who get paid to deal with "the rules" that the Congress passes to be sure that no one accidentally gets out of paying taxes on something. And that the same rules often apply to poor people who do not have an employee (or DBQ) to do this for them, and they get hosed.

So any time someone talks about sticking it to the rich or the big corporation and fusses about "tax loopholes" I see it as overt hostility toward all of the other people who will get caught in tax traps, often very poor people, who can't afford accountants or financial planners.

But we all know that the actual *important* thing is that no "rich" person gets away with anything.

Jason said...

Funny how equities and Democrat reelection prospects seem to be inversely related lately. I wonder why that could be? It's a mystery.

AJ Lynch said...

FLS:
I assume you were making a joke about living off your dividends.

If not, here is a good example. When the tax on cigarettes is increased, people smoke less and take more efforts to evade the tax. In some cases, total tax revenue even decreases.

Like I said, when you tax something, you get less of it.

AJ Lynch said...

Liberals seem to think there is some magic goal line and once the "rich guy" gets over it, he stays in "wealthyville" for the rest of his life.

Well that is not the way the real world works. In the life of a real person, their annual income goes up and down- it does not necessarily stay flat or stay low or stay high. In fact, I'd bet there are very few truly wealthy people [less than 2% of households] in the USA if you measured wealth as total net assets excluding primary residence and set the "wealth" bar at $1 Million,

c3 said...

FLS;
c3 -- what will you spend less on?

vacations
dining out
"toys"
home improvement

Hopefully this isn't surprising to you.

wv: mench I like to think my Jewish friends consider me one.

bagoh20 said...

"c3 -- what will you spend less on?"

American workers. Foreign ones are cheaper every time congress raises taxes.

Foreign company owners and investors will be more incentivized than American ones, but I'm sure it won't have any effect. It hasn't so far, has it?

DaveW said...

Yet the DOW is back up to 11,000. Somebody is hopeful about the future of business under the Obama administration.

Yet the DOW is back up to 11,000. Somebody is hopeful about the future of business with a republican house to block the Obama administration.

There, fixed it for you.

PoliticallySpeaking said...

@Micheal - I recommend you read MY comment again. Although not simplified to reach the dimmest bulbs, I was pretty clear that his premise of "higher taxes create disincentives" was valid. However, the figures he used to "prove" his point were so convoluted as to diminish his argument.

I stated that his error was in making comparisons unrelated to his argument. Making a claim of "this incremental increase is bad", then comparing no-tax vs higher tax scenarios fails to prove his argument. He would have been much better off using real figures - the rates in effect now vs. the rates that my come into effect.

Then he tosses figures unrelated to his statement into the mix by adding in the higher Medicare rates. Those higher Medicare rates are in effect regardless of the incrementally higher rates that become effective if the Bush rates expire.

Taxes distort a truly free market. We choose to tax ourselves to pay for common good items (defense, Soc Sec, roads, etc.). Higher taxes distort more than lower taxes. All that is basic Econ 101.

Where people disagree is what level of taxation is appropriate, and what common goods are and at what level they should be delivered. It appears that Professor Mankiw prefers lower taxes and lower levels of common good. Personally, I disagree. I feel as a country we have the wealth to take care of more common goods (better roads, good defense, basic welfare, and universal health). Unlike the Professor, I will not make any arguments using distorted figures. For example, if I were to promote adding another 30 beds to the local public hospital, comparing the benefit of those additional 30 beds against the harm of closing that hospital is ridiculous. Just as ridiculous as the Professor's "proving" his point by comparing no-tax to higher tax.

Original Mike said...

"I can afford higher taxes. But they'll make me work less."

Of course they do. I've turned down more than one job opportunity because, after taxes, the increased income wasn't worth it.

If there is one thing that defines a liberal more than anything else, it's a complete dismissal of incentives.