Posner Explains Econ 101 to Obama

[T]he President’s recent proposal to tax people who earn more than $1 million at a rate that will make them pay 30 percent of their income in federal income tax carries symbolism too far. If a person who earns $1 million a year and is taxed at an effective rate of 25 percent is subjected to such an imposition, instead of paying $250,000 in taxes he will have to pay $300,000, and he will therefore do whatever it takes to reduce his income from $1 million to $999,999, as that will save him $49,999.

Grandstand gestures like the proposed millionaire tax would have only the slightest effect in alleviating resentment at the rich, and should be understood as campaign documents rather than serious proposals.

See full Richard Posner post here. See Gary Becker also.

Comments (11)

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  1. Myrtle B. says:

    Excellent point. If you penalize me for succeeding, I will be careful only to succeed just enough.

  2. Buster says:

    Too many of the recent policy decisions have been grandstanding. The president’s decision to oppose the Keystone pipeline was probably to make the liberal “base” of the Democratic Party less lethargic and indifferent come election time.

  3. Davie says:

    While I oppose the millionaire surtax, I find Posner’s logic equally uncompelling.

    We already have a graduated income tax. If people wanted to tinker with their income to be placed in a particular tax bracket they would do so now.

    Posner’s logic leaves the door open to Obama’s charge that those with large incomes will merely seek out loopholes. It rests upon the same basic assumption that rich people will hoard their money. This assumption is why Democrats don’t appreciate the enormous contributions of the wealthy.

  4. Ken says:

    Great post.

  5. ChacoKevy says:

    Is the Posner link broken for anyone else? All I can do without being able to read the source is agree with Davie and worry about the need to review marginal tax rates again…

  6. Brian says:

    I could not agree more.

  7. Dr. Mike says:

    Are there really that many people with earned incomes of $1,000,000 or more? It seems to me that most millionaires are well on their way to minimizing earned income and maximizing capital gains, e.g. Mitt Romney’s tax return with an effective tax of less than 15%. You could double Mitts income tax rate and it wouldn’t make a difference. So all this talk of “Make the rich pay their fair share” only results in small business owners and other middle class citizens paying ever increasing taxes whilst the rich continue to laugh all the way to the bank.

  8. ChacoKevy says:

    Dr. Mike,
    Yeah, I’m confused as well. I still need to hear what the Buffett rule is going to tax. I haven’t found anything clear yet.
    All I’ve heard is that the rule would tax incomes over 1,000,000 at 30%. If it meant earned incomes, then this would be welcome by the rich, since the top tax bracket is already at 35% for incomes over $388,350. This would be a cut!
    But since we’re talking about Buffett here, I’m thinking they are trying to say they want to put a graduated rate on capital gains, where joes like me get 15% on our capital gains up to a million and 30% kicks in thereafter.
    That’s my best guess…

  9. Floccina says:

    One has to assume that they would design it such that that problem is avoided.

  10. Gecica says:

    Yes. Ins pmueirm, doctor visits, prescription drugs, contact lenses, and necessarily surgery or purchases are deductible. Over the counter drugs and unnecessarily surgery like boob jobs are not.You add them all up, substract any medical reimb and thats your medical tax deduction. but it is limited to 7.5% of your Adjusted Gross Income (which is your income adjustments), so if you make too much money you most likely cant take the benefit. If you want to save more money, add in you over the counter drugs.

  11. Vienn says:

    No, Ron Paul doesn’t want a corporate iomnce tax either. He want’s to cut the federal government by at least half and to force that to happen by abolishing iomnce tax and replacing it with nothing. As far as revenue goes there WAS a federal government before the 16th amendment and it was funded by tariffs. Of course we barely have a FEDERAL government anymore it’s basically a NATIONAL government and if you got it back to it’s proper functions (protecting our liberties from those that would take them away, foreign and domestic .that’s it) and out of all the ridiculous things they stick their nose into now you wouldn’t need the revenue of an iomnce tax.The sick part about the health care debate is that ending your burden of health care costs on employers and business owners will always be demonized as Taxing Your Health Care Benefits For The First Time In US History when it’s really leveling the playing field by ending the deduction for employers health care costs or at least giving the deduction to individuals too. You saw how well that idea worked for McCain along with buying insurance across state lines. 2 great ideas for lowering costs, instead we got 10 billion page red tape obamacare passed awesome.The real key to getting health care costs under control is to end the 3rd party payer system. It’s just like your driving the rental car illustration in a different post. People with insurance don’t care what the bill is because they don’t see it all they see is the copay and coinsurance. Do you think that car insurance companies could survive if you couldn’t deny based on pre-existing conditions? Wreck your car and then the next day buy insurance to get it fixed after the fact sure I’ll pay the $500 deductable to have you fix the $9000 worth of damage I did yesterday. That’s welfare not insurance. Insurance only works if MOST of the people get paid out less than they pay in for the security of knowing they are covered if they are one of the FEW that need way more than they pay in. If everybody is getting paid out more than they pay in (ahem Social Security) it’s unsustainable and will go under.Health insurance should be the same way as every other insurance, catastrophic coverage only. Would you rather pay $500 a month for car insurance but only pay $1 for an oil change or $5 for a tuneup? Hell no, budget for and pay for your body’s maintenance yourself and premiums would drop like a stone if they didn’t have to cover a common cold you would have gotten over in a week anyway without going to the doctor.