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.)
I suspect a lot of this “shrugging” is going on throughout the economy.
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.
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)!
Who said this is a free society? He probably could have kept more of his income under the old Soviet Union.
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.
Steve