Barstool Tax Policy
Greg Mankiw employs a parable about ten men dividing a bar tab to illustrate the absurdity of the poor complaining about “tax cuts for the rich.”
In response, Matt Yglesias chastises right-of-center economic pundits for relying on generalized anecdotes, while conceding that we shouldn’t go so far as Sweden in soaking the rich. This, in return, unleashes a groundswell of comments asking variants of, “What’s so bad about Sweden, anyhow?”
Ross Douthat responds to Matt’s main point and argues that conservatives rely on anecdote about these things because “when it comes to tax policy, conservatives have long been selling what is, I think, a fundamentally counterintuitive idea,” albeit a logical one when explained properly. Thus far, he has not been harangued by other bloggers or the commentariat.
albeit a logical one when explained properly
And we’re all still waiting to hear such an explanation.
The math in the bar story fits. The problem for the left is that they want progressive taxes, but regressive tax cuts (okay they really don’t want the tax cuts but if they have to have them…)
The other side of that story is what happens if the tenth guy doesn’t show up. As we near April 15th, imagine is just 1% of Americans refused to pay their taxes. If it is the top 1%, more than 50% of the tax revenue goes away.
In Mankiw’s version of the story after the richest man is beaten up he does not return the bar the next night. Some commenters complained because in real life the rich will not stop making money because of high taxes or the poor complaining of the rich getting the most of tax cuts. In reality the rich do see a high tax rate as part of the equation for risk and reward. Why risk capital by investing in property, plant and equipment when the rewards are subject to high tax rates?
what the story proves is that income distribution in our economy is seriously screwed up. Wealth distribution even more so.
The real issue is if you are going to cut taxes it doesn’t make any sense to cut taxes on the rich at all if the goal is to stimulate the economy. If “the rich” felt that current levels of taxation were low to continue engage in money making enterprises then they will continue to do so even if the lower earners get a tax cut, in fact with more money to spend “the rich” will be in a perfect position to harvest that money any way thus making even more.
The reason it makes sense to “tax the rich is because they are the one with the money plain and simple. They are also the ones with the most to protect as they relay on government more then the poor to maintain their wealth, to keep the economic infrastructures in place to continue to make money. Name a low tax country where making money is even possible? Albania? Nigeria? Mississippi?
Rick,
They are making money in Ireland, Switzerland, Texas, Colorado. All with relatively low taxes.