Greg Mankiw’s Marginal Tax Rate

Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?

By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working.

 The full column on how higher taxes will affect high-income taxpayers.  (HT to Marginal Revolution.)

Comments (5)

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  1. Brian Williams. says:

    I suspect a lot of this “shrugging” is going on throughout the economy.

  2. Devon Herrick says:

    This is a good example of how little incentive Prof. Mankiw has to take on additional money-making opportunities. Now consider how this would change if the money-making opportunities involved risking capital that Mankiw already has. Investment decisions involve a risk/reward ratio. If the reward is only worth 10 cents on the dollar; and you risking dollars that have already been taxed, you would be even less inclined to invest in the economy.

  3. Joe Barnett says:

    If he were paid by the word, he could make up the loss by writing twice as much (assuming he had the time and didn’t value his leisure more)!

  4. Bruce says:

    Who said this is a free society? He probably could have kept more of his income under the old Soviet Union.

  5. steve says:

    He only gets his final number by making assumptions about estate taxes 30 years in the future. I doubt that Obama will still be president then. The argument is a fail.