More on Taxes and Incentives

More on Greg Mankiw's thought experiment on taxes and incentives to work.

James Joyner noted the now much-discussed thought experiment by Harvard economist Greg Mankiw as to whether letting the Bush tax cuts expire on the top marginal rate will lead to Mankiw working less because of the tax burden on his top marginal income going from 35% back to 39.6%.

Specifically the thought experiment revolved around the issue of whether it would be worth it for Mankiw, mostly in terms of long-term investment income that would be bequeathed to his children, for him to write an essay that would pay him $1000.

While I understand that Mankiw is trying to demonstrate the effect of income taxes on new marginal earnings by those making over $250,000 a year, I find his example problematic on a variety of levels.

James (in the aforementioned post) along with Kevin Drum and economist Brad DeLong deal with several issues, most strikingly those about the actual amount of money involved in the transaction in question (initially $46).  However, let me add a few thoughts.

1.  One thing that strikes me about the example is that it is in no way reflective of the common income-earners experience.  Most people aren’t freelancers or have choices about income in specific small increments over which they must decide whether the particular work is worth it or not–most people who fall into Mankiw’s tax bracket are salaried professionals who earn what they earn.

2.  Of course, writers and academics (such as Mankiw) often do fall into this category.  What is striking about that observation is that writers and especially academics do work like the essays in question for reasons other than money.   As Brad DeLong put it in his post on this subject, one key motivator for such persons is “to inform and educate their readers.”

Indeed, since a lot of people write and blog often for free or close to it, I am thinking that there are more than simply monetary incentives at work here.  No one goes into academia for money anyway, so it is clear that from the get-go Mankiw was interested in sharing ideas for reasons other than boosting the inheritance of his children.

3.  Along those lines Mankiw elides a key factor:  in academia one of the key currencies of the realm is reputation (also true for authors in general).  One key way reputation is built is via publication.  Indeed, a lot of writing done by academics is done for free or at a very reduced compensation rate.  I made very little money directly form my book on Colombia, for example.  However, that book very clearly helped me get a promotion in academic rank and it also (I hope) increased my standing in a specific segment of the academy.  This has value apart from the money the book produced.

And along those same lines, there is something to being a writer for the New York Times that probably makes the $46 he would lose under the pre-Bush tax rates insufficient to disincentivize said writing.

4.  Even if Mankiw doesn’t make as much from a given column after taxes than he might like, does not his increased exposure in the non-academic world have the chance to earn him more income via other possible writing or speaking gigs?  Might it not help bolster the sales of his books?

In short:  I am not buying the notion that the return to the pre-Bush era top marginal rates is likely to effect Mankiw’s productivity at all because the work he is talking about because the calculation is not as simple as he presents it to be.

I am not, by the way, even arguing one way or another about said rates—I just find the whole argument as presented by Mankiw to be unpersuasive and to leave out the other kinds of incentives that exist outside the raw dollar calculations of a specific transaction.

As a side note:  I would like to assure the audience that despite Mankiw’s discussion of his income circumstances, his income situation is not typical for the professoriate.  🙂  I am not complaining, mind you, just making an observation.

FILED UNDER: Taxes, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. Brummagem Joe says:

    De Long’s takedown is classic. You have to wonder how Mankiw shows his face in the bar after some of these pontifications. My experience has been when this happens a huge roar goes up which causes you to shrink to 3″ in height. But perhaps such unruly conduct is not allowed in economic circles.

  2. Steve Plunk says:

    Mankiw’s example fits well into the model of a small businessman. In that case it holds up against your arguments. I don’t know but I suspect that’s what he was trying to illustrate.

  3. But does it? What businessman gives up 500+ dollars because earning it would cost him $46?

  4. Davebo says:

    “What businessman gives up 500+ dollars because earning it would cost him $46?”

    One soon to be out of business. Trust me, especially in the current economy.

    “Mankiw’s example fits well into the model of a small businessman.”

    Only those too stupid or too cheap to have a good CPA. Again, trust me.

    Mankiw is by no means a stupid man. So either who slapped that op-ed together for the money, or to deliberately obfuscate the issue.

  5. mpw280 says:

    How likely is it that higher taxes will lead to more cheating on taxes? Inquiring minds want to know Mr Geithner!
    mpw

  6. sam says:

    “What businessman gives up 500+ dollars because earning it would cost him $46?”

    Probably the kind that whines about the intolerable burdens government imposes on him.

  7. Trumwill says:

    A couple of years ago, I would completely agree with Taylor on this. Now… I only mostly agree, due to my own experience since then. My wife is an MD who pulls in a pretty substantial income. All taxes combined, our takehome appears to be a little over 60% of her salary. Considering that any job I get will come out of the top tax bracket (as I understand tax law), I’m probably looking at my paycheck being whacked by 40%. I am not even a low-tax Republican sort, but I find this really quite discouraging when it comes to taking a job that isn’t exactly what I want. It also provides a disincentive for her to take a “better”, more stressful job that pays more.

    On the other hand, I recognize that our situation is not necessarily typical. I do think it has ramifications for second incomes, whether a mother takes a part-time job or stays at home with the children, and so on. Then again, we’re only talking about a 4% hike. If don’t know how much more discouraging taking home 56% of our take-home pay is compared to 60%.

    (Also worth noting is that we could be in for a huge tax refund. This is our first year with her on a full doctor’s salary and maybe our withholdings are way too high for some reason or another.)

  8. Brummagem Joe says:

    Steve Plunk says:
    Monday, October 11, 2010 at 18:02
    “I don’t know but I suspect that’s what he was trying to illustrate.”

    No it doesn’t hold up for a small or large businessman.There’s been another thread on this topic where various folks tried to sell the idea that if someone gets a raise regardless of his tax bands and deductions he automatically is going to be paying 38% tax on it regardless of the fact the top marginal rate is only 35% (and to be affected by this you need to be earning around $350k). To make this crazy math work of course they had throw in lots of other totally unrelated stuff like FICA and state taxes (which is what Mankiw did). They didn’t include airport taxes. I wonder why? The same people also claimed that because of marginal theories in classical economics this meant the additional output from any new investment was going be taxed at the max corp rate of 35% which is baloney in reality but needless to say financial sophisticates like Steve Plonker bought it. The effective rates of tax on both the top 1% of income earners and corporations is in the teens. Many major corporations like GE and Exxon paid no tax last year. As Warren Buffett famously pointed out his secretary was paying tax at higher rate than he was. That’s right Steve you don’t know. Sorry if this sounds harsh but why the heck don’t you get informed instead of just acting as an echo chamber for nonsense.

  9. Brummagem Joe says:

    “Then again, we’re only talking about a 4% hike.”

    Er precisely. For a couple earning 250-500k assuming max deducts the change in bands is going to mean tax hikes of plus/minus 3.5%. This is not likely to make a iota of difference to lifestyles or motivation. And congratulations on the income jump.

  10. Brummagem Joe says:

    mpw280 says:
    Monday, October 11, 2010 at 19:02
    ‘How likely is it that higher taxes will lead to more cheating on taxes?”

    You have an income of 500k and your tax bite jumps by 4% or so and this is going to make you start seriously cheating on your taxes. Yeah that sounds like a plausible scenario.

  11. Tano says:

    “Trust me, especially in the current economy…..Again, trust me.”

    Are you some kind of a comedian or something?

  12. Brummagem Joe says:

    Tano says:
    Monday, October 11, 2010 at 19:35

    “Are you some kind of a comedian or something?”

    Are you making a joke or don’t you think these are reasonable statements of reality?

    “What businessman gives up 500+ dollars because earning it would cost him $46?”

    “Only those too stupid or too cheap to have a good CPA.”

  13. mpw280 says:

    Hey Joe, explain Geithner then, or are democrats allowed to cheat on their taxes while everyone else has to pay? 20K is a pretty big bite to just cough up. You want to pitch 20K in too? If it is so great to pay more taxes jump right in and pay more, you can give up some things and save the extra money and throw it into the government maw, it will make you feel great, or so the democrats tell us, and the government won’t waste it either. If you are taking all your deductions and working to avoid as much tax as possible then you are hypocrit. It is always ok for someone else to pay, especially when it is a small minority of the population. When you get jabbed for more taxes then it becomes something to worry about, but since it isn’t you who is paying you think it is just fine. Maybe you need to feel the pain of more taxes to take an interest in how much people pay in taxes. mpw

  14. Brummagem Joe says:

    mpw280 says:
    Monday, October 11, 2010 at 20:00

    You were suggesting a modest jump in rates for top payers was going to provoke a jump in evasion, It won’t. And of course I use efficient tax strategies who the hell doesn’t. And stop pontificating about taxes I should or shouldn’t pay since you know nothing of my circumstances. Until a couple of year ago as it happens I would have been affected by these band changes. It wouldn’t have made dimes worth of difference to how I lived, thought or acted. What’s a mystery to me is why people who clearly aren’t affected and don’t know diddly squat about the subject should be so anxious to protect the incomes of people like me.

  15. Trumwill says:

    [A 3.5% hike] is not likely to make a iota of difference to lifestyles or motivation. And congratulations on the income jump.

    A difference in lifestyle? No. I am not quite as sure when it comes to motivation. Especially if the 3.5% crosses some psychological threshold like 50%. For me it was 35% when it started kind of getting my attention. It’s not rational and I have no idea why it is. I don’t even support extending the Bush Tax cuts. But it does affect my desire to take on a non-great job and makes it more likely that I will stay at home with our future children. If we ever reached a 50% threshold, she might choose to retire earlier rather than spend more than half of her time “working for the government” if she stops enjoying her job.

    On the other hand, in lieu of work I am looking at volunteering. She could choose to take on a charity job that makes up for the lack of income with job satisfaction. There would be pluses with minuses.

    I’m not really worried about this 4%, but I am wary of saying “4% doesn’t make a difference” because I think at some point – and a different point for everyone – it might. It doesn’t affect how I view the Bush Tax Cuts (which is why I still mostly agree with Taylor), but I do think it is something to be mindful of.

    On a sidenote, this is where the nature of our tax code is problematic. It’s complex enough that it’s not easy to discern how much you end up paying. The numbers you see on the brackets are misleading. The end result is a significant overestimation of how much we pay in taxes. First, because people look at the top marginal rates and don’t take into account that most of their taxes are (usually) paid into lower brackets. Second, because the number starts high and then gets lower with exemptions and whatnot. Third, a lot of people don’t realize that the SS withholdings stop after a certain amount of income. So people end up reaching their psychological threshold when they’re actually being taxed at a lower rate than their threshold is. If that makes sense.

    And congratulations on the income jump.

    Thanks!

  16. michael reynolds says:

    I’ve made the point before that in my business higher taxes actually spur me to greater productivity. Let’s say I need 250k a year to maintain my lifestyle. I’ll do whatever I need to do in order to maintain at that level. If my taxes go up, I take on more work. If I take on more work it has a ripple effect on other employment — in my case booksellers, editors, shippers, warehousers, etc…

    So for me at least higher taxes force me to work harder and create more jobs. I realize that makes Republicans’ heads explode but it’s true. Although I freely admit that my situation may be unusual.

  17. steve says:

    Trumwill- Speaking as a fairly highly compensated physician, I strongly suspect your withholding is too high. Is she self-employed? I would suggest you talk with a good accountant. That said, my wife went the volunteer route.

    Steve

  18. Steve Plunk says:

    Brummagem, I never got into to it over the marginal rates. I didn’t see it as worth my time to debate so your statement concerning me falling for it is baseless. I don’t quite get your mangling my name, is it for juvenile kicks?

    What many of you aren’t getting is that as the tax burden grows the attractiveness of leisure grows for the small businessman.. That has an effect on productivity. Why invest when your returns are eaten up by wasteful federal, state, and local governments? As for corporations like GE and Exxon they may well have not paid income tax but they sure paid employment taxes, property taxes, and the like not to mention they employ plenty of people even in the Obama economy.

    Keep throwing out the insults and uncivil comments, it shows there’s no substance to your argument. Uninformed? Look in the mirror.

  19. Nightrider says:

    “What businessman gives up 500+ dollars because earning it would cost him $46?”

    Someone who doesn’t need the $500 and who values free time, time with the kids, etc, more than the fraction of the $500 he could keep after taxes. In the past few years as my income went up a lot, I found myself frequently turning down or at least being unconcerned about chances to work more to make extra money, where I would have done so if it were taxed less. I’m not drawing any policy conclusions from it, but it is certainly true in my case that taxation discourages work. Since I’m also an employer, sometimes this means my employees do the work instead, so no loss to the economy; other times it probably results in me employing fewer people.

    It would be nice if, every once in awhile, the “tax cuts” for the “rich” were put into the context of gross dollars paid, and not the rate.

  20. Trumwill says:

    I’ve made the point before that in my business higher taxes actually spur me to greater productivity. Let’s say I need 250k a year to maintain my lifestyle. I’ll do whatever I need to do in order to maintain at that level. If my taxes go up, I take on more work.

    This is true, too. I meant to make a nod to it. I think it’s particularly true on the coasts where it’s really hard to get by on a lower income. Unless, of course, you move to a place with a more sane cost-of-living.

  21. Duracomm says:

    Luckily we know democrats believe and understand taxes don’t impact behavior. That is why they don’t want to tax CO2, soda pop, fast food, alcohol, high value insurance plans or cigarettes.

    Cigarettes really illustrate the stupidity of the idea that taxes change behavior.

    The idea that a tax on something as highly physically addictive as cigarettes would actually change a persons behavior is just stupid. Democrats are sure that taxes do not influence behavior and are way to smart to fall for that kind of stupdity.

    Wait, what?????

  22. wr says:

    So let’s say the extra few percent in tax inspires you to slow down your workload and go fishing. People here keep acting like this is some kind of cosmic tragedy. Maybe it’s a good thing. No matter what Republicans say, you don’t need to work 100 hours a week. People in Europe made this trade-off a long time ago — they pay higher taxes, have less take home, and also have a strong safetfy net, which allows them two months of vacation instead of two days. They get to see their kids. They get to live outside of work.

    I don’t know, maybe Plunk will call me a fascist for this, but I don’t see the harm in lowering our productivity so we can have a decent life. After all, we’ve spent twenty years increasing our productivity while our wages dropped, solely so those at the top can take out more in profits and we can die earlier.

    All you people who’d rather not work than pay an extra three percent — God bless you. Go on your way. Somehow we’ll make it without you. I hope you enjoy your free time.

  23. Trumwill says:

    Speaking as a fairly highly compensated physician, I strongly suspect your withholding is too high. Is she self-employed?

    She is not. I hope that you’re right. She’s bringing home a pay-stub this week and I’m going to go over it with a calculator. It’s one of those things that has been gnawing at me.

  24. Rick DeMent says:

    What many of you aren’t getting is that as the tax burden grows the attractiveness of leisure grows for the small businessman.. That has an effect on productivity. Why invest when your returns are eaten up by wasteful federal, state, and local governments?

    No we get it Steve. what you don;t get is just because Mankiw, or anybody, decides, for whatever reason, not to take advantage of an opportunity doesn’t mean that opportunity just fades away. Someone else will do it. Money doesn’t just sit on the table. Fact is i have seen companies take business that they know for a fact are money losers. It happens all the time for all kinds of silly reasons.

    The only reason ever leaves money on the table, whether its ‘s $0.50 on the dollar or 100% of that dollar is because they are satisfied with what they have an don;t want to do the extra work or take the risk. But rest assured someone else will and that is the epic fail of this whole stupid line of argument. It’s not that people like Mankiw is stupid, it’s that he thinks we are (well actually some of us are, just not me).

  25. Brummagem Joe says:

    Trumwill says:
    Monday, October 11, 2010 at 21:04
    “A difference in lifestyle? No. I am not quite as sure when it comes to motivation. Especially if the 3.5% crosses some psychological threshold like 50%.”

    My wife never worked after our first so dual incomes were never an issue. But over 35 years as the rates have jumped around I can honestly say what I was paying in taxes was never an issue in terms of motivation. All my kids are high earners and those that are married are married to high earners and I really don’t think taxes have any impact on their behavior at the levels were talking about. Obviously, if rates returned to the stratosphere it might be different. And when you say 50% I presume you’re not paying this as a family because if you are you definitely need an accountant.

  26. Brummagem Joe says:

    Steve Plunk says:
    Monday, October 11, 2010 at 22:06
    “Brummagem, I never got into to it over the marginal rates.”

    Well you endorsed some baloney on the subject of personal marginal rates and corporation taxes I believe and as your second para of vague and somehat questionable generalisations demonstrates you don’t have much grasp reality. However, APOLOGIES for the play on the name, it was a bit of low blow that I shouldn’t have indulged in.

  27. Brummagem Joe says:

    Duracomm says:
    Monday, October 11, 2010 at 23:12
    “The idea that a tax on something as highly physically addictive as cigarettes would actually change a persons behavior is just stupid.”

    Higher taxes don’t affect behavior? I wish you guys on the right would get your stories straight. You’re all arguing quite small jumps in marginal rates are going to stop small businessmen from working harder and start going fishing but higher taxes on cigs have had no effect on consumption. Now most businessmen I know are fairly addicted to work basically because although exhausting and frustrating at times, it’s also very interesting and stimulating. And on the whole I think this holds true for anyone doing a satisfying job in the highly remunerated professions. So the notion that all these people(and remember were talking 2-3% of the working population) are going to modify their behavior because of fairly small hikes in tax rates that are going to return them to where they were in Clinton era strikes me as ill founded to put is mildly.

    On consumption taxes, like all taxes it’s obviously complicated but there’s little doubt consumption taxes can alter behavior. The steadily escalating level of taxes on cigs has undoubtedly been a factor in their declining use even it only stopped people from taking up the habit. In Europe most cars are diesel because of of high taxes on gas. If the tariffs on all Chinese knitwear were dramatically increased then once it reached the consumer people would stop buying Chinese polo shirts.

  28. john personna says:

    Lower taxes are a good thing (all else being equal).

    The problem is that it’s hard to hold all else equal, while lowering taxes. Deficits and debt have a tendency to rise, for fairly obvious reasons. This despites someone’s assertion yesterday that taxes and debt have nothing to do with each other 😉

    Now, as I’ve said, I’d be fine with a lower government footprint and lower taxes, if that was passed democratically. What I’m doing there is saying that 1) I put democaracy first, and 2) I expect democracy to find balance between governement which is too large or too small.

    The real breakage we have is that an entire society has allowed the tax question to become disocnenected from the budget question. When was the last time you heard a good call for a balanced budget from either party? It’s been a while. You know why that is? It’s simple. To do it you need some tax increase along with many budget cuts.

    And too many people would like to pretend otherwise. They like to pretend, thorough intellectual laziness or internal dishonesty, that a fantasy budget crafted of just tax increases or just spending cuts can be made and passed in this democracy.

    Democracy isn’t a fantasy game of what we individually want. It is a decision process that brings in everyone.

  29. john personna says:

    (BTW, it should be obvious to all that Mankiw kicked off an argument that said “let’s focus in, forget the big picture. here, use my microscope. look at just a fantasy version of me, and forget budgets, debts, and the necessity to balance taxation and spending.)

  30. Brummagem Joe says:

    “and the necessity to balance taxation and spending.)”

    And income distribution within an economy that relies on consumer spending for generation of 70% of it’s GDP. It’s too high but for better or worse this is what we have at the moment. And the notion that this can be sustained when the real incomes of 90% of the country have been stagnant or declining for thirty years apart from brief uptick in the 90’s isn’t very convincing. There have been huge gains in productivity gains over those thirty years but most of the benefits have flowed upwards. Income growth in the 90’s preserved the illusion that the model could continue but once incomes resumed their stagnant trajectory in the early 2000’s consumers had to resort to borrowing to preserve the illusion. And we all know how that ended. This isn’t altruism but a recognition that you can’t keep diverting an ever increasing share of income to the wealthiest 3% without it curtailing the spending of the 90% whose incomes are falling behind in real terms. If we want a vibrant economy these guys need more real disposable income.

  31. john personna says:

    I’m not liberal enough to accept “income disturibution” as a goal.

    A “safety net” I can support.

  32. john personna says:

    (Again, putting democracy first. If 51% were to support income distribution (unlikely), I’d go along.)

  33. ponce says:

    “(Again, putting democracy first. If 51% were to support income distribution (unlikely), I’d go along.)”

    A rather large majority of Americans believe the rich are under taxed.

  34. John Personna says:

    I believe the rich are undertaxed, but for me that is not bound to wealth redistribution. In fact, I think that binding is counterproductive.

  35. c.red says:

    One thing I’m noticing is that everyone is speaking about this theoretical “incentive” as if it is only personal. Now I’m happy that Trumwill has circumstances where he can choose to take a second household job or not, but if he does not the theoretical job doesn’t go away… it opens up for someone else to take. nd that could somone else’s first job, turning them into a producer, or their second job raising up their lifestyle and income.

    Even in the theoretical case in the article where the writer loses incentives to write a few extra words, I’m pretty certain society isn’t going to miss it.

    The only place we’re losing anything is when someone has no incentive to create something new and unique (whether it be the next great classic novel or working fusion power plant) and since most of the cases either involve non-monetary incentive, or so much money as to be in another class altogether, I don’t think we have much to worry about.

  36. Brummagem Joe says:

    John Personna says:
    Tuesday, October 12, 2010 at 12:39
    “I believe the rich are undertaxed, but for me that is not bound to wealth redistribution. In fact, I think that binding is counterproductive.”

    Well of course it’s entirely bound. Inacio Lula has engineered a huge surge in the Brazilian economy by wealth transfers from the richest to the lower classes and without damage to the economy. He’s about to surrender the presidency with 80% approval ratings. When economic forces, oligarchical power, and govt legislation transfer disproportionate shares of productivity gains to the wealthiest how do you think transfers are ultimately effected? It seldom gets stated in terms as stark as these outside of economic journals but that’s what happens. And in our case it’s not about social justice principally but more about sustaining the needs of an economy that is is 70% dependant on consumer spending. How can such an economy be vibrant when the real spending power of 90% of its cititzens is being diminished? Another
    factor btw that has masked the impact of this decline in real earnings has been the drop in price of many consumer goods because of the rise of low cost producers like China.

  37. John Personna says:

    The difference is of course political and not economic. Any progressive tax rate is literally redistributave but even Democratic candidates are smart enough not to say that.

    It won’t sell.

  38. Brummagem Joe says:

    John Personna says:
    Tuesday, October 12, 2010 at 13:20
    “The difference is of course political and not economic. ”

    It would be truer to say perhaps that the obstacle to an honest discussion about it is political but these things tend to shift. If the real incomes of 90% of Americans remain flat for another 30 years it’s going to get talked about don’t you think? If for no other reason than the effect on US GDP growth would be dramatic.

  39. Brummagem Joe says:

    “If the real incomes of 90% of Americans remain flat for another 30 years it’s going to get talked about don’t you think?”

    The pitchforks will be out long before then! Redistribution isn’t always hard cash it can be goods and services. Universal healthcare is ultimately going to be highly re-distributive.

  40. Nightrider says:

    As someone who said taxes do reduce the amount I choose to work, I’ll chime in that I generally agree that it is often not society’s loss because someone else gets that work. I was just commenting that it really is true that high taxes rates make me work less. And thanks, I do enjoy the extra free time.

    As for the rich being “undertaxed,” that makes taxation sound like the end rather than the means. If the actual goal is redistribution, then I suppose it is. For the rest of us who think of taxation only as a means toward funding government, the real problem is the undertaxation of the middle class to fund all the stuff that they demand their politicians do. Hence the deficits. If the tax man literally came to everyone’s door every week and demanded a contribution of a truly fair share from everyone, government spending would be cut big time pretty fast.

    It may be practical reality that one person pays $1 million in taxes and another $10000, but for the guy paying $10,000 to whine about it as “unfair” that the other guy isn’t paying $100,000 more is the kind of short-sighted, self-centered BS that gets us into our deficit-spending, entitlement culture. And Republican middle-class voters addicted to their Medicare and military spending do this too, I’m not aiming at Democrats alone here.

  41. Trumwill says:

    Trumwill has circumstances where he can choose to take a second household job or not, but if he does not the theoretical job doesn’t go away… it opens up for someone else to take. nd that could somone else’s first job, turning them into a producer, or their second job raising up their lifestyle and income.

    This is true in the current economy and something that I have considered. Knowing that any job I take is taking a job from someone who might need it more is another disincentive. Particularly if it’s a job I am overqualified for (which is most of the jobs I’ve had in recent years), I might be getting in the way of someone just starting out. Having said that, one of the options I am considering is starting up my own business. And while it’s true that someone just starting out may need the job more, there may be a net benefit to the company hiring someone with extra qualifications. Lots of things to consider.

  42. John Personna says:

    Nightrider, I don’t know if you have heard me tell the Dillinger story. According to lore, he was asked why he robbed banks. He answered “that’s where the money is.”

    Given debt and deficit, that’s my answer on why we need to tax the rich more. That’s where the money is. See again our actual wealth distribution.

  43. john personna says:
  44. Nightrider says:

    OK, so we are agreed — proposals to increase taxes only on people wealthier than themselves are made only by people morally equivalent to bank robbers. 😉

  45. Brummagem Joe says:

    John Personna says:
    Tuesday, October 12, 2010 at 19:59
    ” I don’t know if you have heard me tell the Dillinger story. According to lore, he was asked why he robbed banks. He answered “that’s where the money is.”

    Actually I thought it was Willie Sutton a somewhat less well known gangster but who is remembered for this aphorism.

    Nightrider says:
    Wednesday, October 13, 2010 at 00:24
    “OK, so we are agreed — proposals to increase taxes only on people wealthier than themselves are made only by people morally equivalent to bank robbers. ;-)”

    What a Mickey Mouse comment. And follow your philosophy to its logical conclusion and what you end up with are oligarchical societies with immense wealth gaps as existed here in 1900 or more recently in place like Brazil. What’s short sighted is to believe we can have a vibrant 21st century economy which depends for most of its GDP on consumer spending while progressively reducing the purchasing power of 90% of consumers. I’m afraid your cracker barrel philosophising while superficially attractive like motherhood and apple pie pays no heed to reality.

  46. Brummagem Joe says:

    john personna says:
    Tuesday, October 12, 2010 at 20:34
    “Here we go:”

    The mystery in all this of course is the point that Ritholz et al are making. Why do most ordinary Americans think “they” have the money. The vast majority have negative net worth. I didn’t look at these charts in detail but as rule of thumb it’s long been known that in round terms 10% of Americans own about 90% of liquid assets and this number rises to around 20% of all assets because of the inclusion of real estate equity which is most ordinary American’s only asset of significance.

  47. john personna says:

    Huh, when you search “dillinger why do you rob banks” you get confirmation that he said it, but when you search “why do you rob banks” there are more sutton hits.

    But no Niterider, I can’t take that as a good joke.

    It gets back to paying bills in a democracy. Don’t tell me broken government and unfunded debts are the morally righteous outcome. See also, Greece.

  48. Brummagem Joe says:

    “Huh, when you search “dillinger why do you rob banks” you get confirmation that he said it, but when you search “why do you rob banks” there are more sutton hits.”

    Because you prefaced it Dillinger but It was Sutton who said it. Of course lots of good quotes get ascribed to the wrong people or re used.

  49. john personna says:

    Well Joe, you should give me some credit for believing old Dad on that one.

    Niterider, this is what happens when you don’t care about paying your bills:

    Debt market strips U.S. of triple-A rating

    As long as you get a tax cut, who cares? Right?

  50. Brummagem Joe says:

    Nightrider says:
    Tuesday, October 12, 2010 at 17:51

    Btw nightrider if you’re running a business I have nothing but respect for you because I’ve been there but are you really telling me that most of the businessmen you know are going work less because their tax bill is going up by 3 or 4%? It’s in the blood, man. Henry Ford wasn’t a Nobel prize winning economist like Paul Krugman but he’d figured out that the way to sell more cars was to give his workers the means to pay for them.

  51. Brummagem Joe says:

    “Well Joe, you should give me some credit for believing old Dad on that one.”

    Well fathers are sometimes wrong as my kids never cease telling me.

  52. Nightrider says:

    >>>.What a Mickey Mouse comment. And follow your philosophy to its logical conclusion and what you end up with are oligarchical societies with immense wealth gaps as existed here in 1900 or more recently in place like Brazil. What’s short sighted is to believe we can have a vibrant 21st century economy which depends for most of its GDP on consumer spending while progressively reducing the purchasing power of 90% of consumers. I’m afraid your cracker barrel philosophising while superficially attractive like motherhood and apple pie pays no heed to reality.<<<<<

    Ah, sigh, now I remember why I hate the Internet. I even put a 😉 next to my comment. My main point is a serious comment, though. Mondale was right. If the middle class wants XYZ they need to pay some for it too. I don't even want to hear comments about who is already paying their fair share while we run $1 trillion deficits.

    Wealth redistribution is a complicated topic and I don't claim to have all the answers. I personally would rather be affluent in the US where it is safe and clean to walk around than rich in India. So I think it is a fair policy question you raise. But it isn't a slam dunk case that US tax policy is what brought us that difference either.

  53. Nightrider says:

    >>>>Btw nightrider if you’re running a business I have nothing but respect for you because I’ve been there but are you really telling me that most of the businessmen you know are going work less because their tax bill is going up by 3 or 4%?<<<>>>But no Niterider, I can’t take that as a good joke. It gets back to paying bills in a democracy. Don’t tell me broken government and unfunded debts are the morally righteous outcome.<<<<,

    If you look back at my original comment, what I was responding to is the idea that **only** the "rich" should be paying more in taxes. My biggest point was that everyone needs to pay more unless we cut spending. I voted for Bill Clinton two times and think he was a very good President. I thought most of the Bush tax cuts were irresponsible because they weren't paid for, especially with the looming Medicare fiasco. At the time, I recall saying to someone that it was the worst possible time to cut taxes on the Baby Boomers who were heading into the highest-income years of their lives and we needed to nail them while we still had a chance, to make up for their deficit ways of the 80s and their Medicare horizon.

  54. john personna says:

    We had a long run as the sole economic survivor of WWII. Arguably that allowed high tax rates and an expanding middle class at the same time. Now, our percentage of world wealth is reduced, as is our role in creating that wealth.

    We probably have to look at Europe for models of how to deal with that. They’ve been there for roughly 50 years.

  55. Nightrider says:

    Hmm, last post doesn’t look like I asked it to. Should have started:

    >>>>Btw nightrider if you’re running a business I have nothing but respect for you because I’ve been there but are you really telling me that most of the businessmen you know are going work less because their tax bill is going up by 3 or 4%?<<<<

    I'm not speaking for others. I was just commenting that I work less already because of the tax rates. In fact, I am doing that right now! 😉

  56. Brummagem Joe says:

    Nightrider says:
    Wednesday, October 13, 2010 at 12:38

    “I’m not speaking for others. I was just commenting that I work less already because of the tax rates. In fact, I am doing that right now! ;-)”

    What an idle bugger. The reason I’m unmoved by your and similar tales from the Heartbreak Hotel is that they usually leave out salient info or stack the deck as Mankiw did (and some guy I was arm wrestling with here the other day) to make the picture look worse. If you take the typical small business man who is a sole proprieter, or one of several partners, organised in a S corp or LLC you know as well as I do that the scope for let’s call it exercising creativity in tax mitigation is considerable. Far more than is available to a normal employee. Quite apart from this I believe the reporting rates for S corps and similar is around 70% while for ordinary employees it nearly 100%. The mills of the IRS may grind small but they tend to grind less small for small businessmen than regular employees. The effective tax rate for the top 1% of income earners who include a fairish numbr of small businessmen is around 16% which hardly seems equitable when a nurse might be paying 25% of her income in taxes, now does it?

  57. Brummagem Joe says:

    “I even put a 😉 next to my comment. ”

    Does this mean I was meant to understand it was Mickey Mouse comment? I don’t take micky comments seriously as they are usually from Disney type characters. You’re obviously not one of those hence my surprise and the what I thought was slightly humorous response.

  58. Nightrider says:

    >>> What an idle bugger. The reason I’m unmoved by your and similar tales from the Heartbreak Hotel is that they usually leave out salient info or stack the deck as Mankiw did (and some guy I was arm wrestling with here the other day) to make the picture look worse. If you take the typical small business man who is a sole proprieter, or one of several partners, organised in a S corp or LLC you know as well as I do that the scope for let’s call it exercising creativity in tax mitigation is considerable. Far more than is available to a normal employee. …The effective tax rate for the top 1% of income earners who include a fairish numbr of small businessmen is around 16% which hardly seems equitable when a nurse might be paying 25% of her income in taxes, now does it?<<<<

    My original post responded to a question someone asked. They said why would anyone work less over $46 and so I explained how that was so for me. I even said "I’m not drawing any policy conclusions from it." But I'm on the Internet so I guess I shouldn't be surprised that everyone rushes to premature conclusions and insults, since that's what we all see everyone else do.

    Oh, I wish I only paid 16% in taxes. I wish I only paid double that. maybe I need to ask for some help in "mitigation." I pay taxes on meals I don't eat and sky boxes I've never seen. I pay both halves of my payroll taxes and the other half of my employees. I don't get to do Roths, or get most of the credits like for my kids. I pay more in taxes than the nurse makes. But I wasn't complaining about that. Maybe I should be paying more. What bothers me is the nurse saying she doesn't want to pay any more taxes but wants Medicare to pay for her $300,000 liver transplant three months before she would die anyway, and she wants wars in the Middle East that won't ultimately help and may hurt, for troops in South Korea sixty years after that war was over, and she wants a federal Dept of Education that doesn't teach anyone anything, and she wants me to pay for all of it. Well, really she wants Warren Buffet to pay, as my tax bill is laughable compared to his. And I'm not even complaining that it is unfair. My main point is that I think democracy and good government have suffered because the average middle class voter is totally disconnected from the cost of the programs that they decide to support. I don't even know if they are connected to the taxes they even do pay; whoever came up with the idea of the payroll deduction is certainly a genius.

    Measuring tax fairness in terms of a percentage of income rather than dollars paid is debatable. I'll leave it at that.

  59. Brummagem Joe says:

    ” But I’m on the Internet so I guess I shouldn’t be surprised that everyone rushes to premature conclusions and insults, since that’s what we all see everyone else do.”

    Lighten up. If I’m expected to recognize when you’re making mickey mouse comments for effect you should be able to recognize a bit of mild ribbing. Sorry nite rider most of the above about sky boxes and liver transplants is a collection of philosophical non sequiturs to avoid facing the issue of inequity in the tax system. I never said you paid taxes at 16% I said there is a class of taxpayer (who corral roughly 22 % of national income) who are paying taxes on this income of around 16% which hardly seems equitable when those on a fraction of these incomes who you claimed were undertaxed are paying in the mid 20’s. Nor of course do you address the issue of the opportunity that S corp/LLC’s provide to limit the tax exposure of their owners. Before I retired I ran a mid sized company that acquired some of these businesses either from their owners of chapter 11 so I’m not totally ignorant of how these opportunities are exploited.

    “Measuring tax fairness in terms of a percentage of income rather than dollars paid is debatable.”

    I suppose it is if you reject the whole notion of progressivity as apparently you do.