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Greg Mankiw's tax bill

There's a lot wrong with this Greg Mankiw article on taxes. Most of the really egregious bits are summed up by Kevin Drum, but there are a few he doesn't mention.

It's important, first, to understand that Mankiw is comparing three worlds to each other. In one of them, there are no taxes. That world is there to dramatize the effect of taxation. In the second world, the Bush tax cuts for income above $250,000 expire. And in the third, they don't.

The first world is worthless. A world with no taxes is a world in which we're all British, or Mexican, and thus paying taxes to someone else. It's not a world in which economics professors at prestigious universities are paid thousands of dollars to write confusing op-eds, and that money is then invested in corporations at 8 percent interest over 30 years. So let's just set that world aside.

In the two worlds that actually matter, the tax cuts are neither here nor there. Instead, Mankiw's wealth and his children's inheritance are mainly affected by two other factors: The first is how much money Mankiw makes investing his money, and the second is the size of his estate.

Mankiw is assuming 8 percent annual growth over 30 years. That's pretty good, and it allows him to turn his $1,000 into $10,000, at least before factoring in taxes. Here's the thing, though: That's the sort of return you could've gotten in the 1990s, under Bill Clinton's fiscal management. From 1993 to 2001, the inflation-adjusted, annualized return from the S&P 500 was 10.89 percent. But once the Bush team -- Mankiw included -- came into office, that plummeted. From 2001 to 2009, the return was -2.41 percent. You'd much rather have the Clinton economy than the Bush tax cuts.

Then there's the estate tax. Mankiw is comparing a world with no estate tax to a world with an estate tax. But as of 2009, the first $3.5 million of an estate were exempt from taxation. Before that, it was $2 million. If his estate is below that, the estate tax won't affect him.

And if it's above? Economists measure two separate impacts from taxes. The first, the one most people know about, is that taxes make you work less because they lower the reward. The second, however, is that they make you work more because you need to work more in order to make enough money to live the way you want. When money comes easy, it doesn't encourage you to work.

If Mankiw is passing millions of dollars in tax-free money on to his kids, he's pushing an extreme version of that problem onto them: They'll have very little incentive to work, and much more incentive to paint, or travel Europe. Mankiw's incentive to do more, in this case, is coming at the cost of his children's incentive to do more. From society's perspective, it's not an obviously good deal.

And then there's the factor Mankiw doesn't consider at all: The deficit. Mankiw and his boss passed the tax cuts and didn't pay for them. They passed Medicare Part D and didn't pay for it. So now that money needs to be made up somehow. There are economic costs to raising taxes on the rich. But there are also economic costs to cutting financial aid for the poor, or delaying needed investments in infrastructure. More, I'd bet, than reducing Mankiw's incentive to write opinion articles.

By Ezra Klein  | October 11, 2010; 3:28 PM ET
 
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Comments

"You'd much rather have the Clinton economy than the Bush tax cuts."

Why is this so hard to comprehend? It almost seems like the rich folks whining the loudest are stupid and short-sighted to the point of irrationality.

Posted by: AZProgressive | October 11, 2010 3:52 PM | Report abuse

One of the biggest problems with Mankiw's example of how tax rates effect incentives is that given Mankiw's job, he has the ability to decide how hard to work. For most people, who are not their own bosses, they work when they are told. Therefore, even if the tax rates suddenly jumped 10%, unless they quit their jobs altogether, they have to work as long as their bosses say.

Posted by: mschonholz | October 11, 2010 3:54 PM | Report abuse

With a minimal amount of estate planning Mr. Mankiw and his wife could leave their children a total of $7M estate tax free which would go a long way to making a down payment on a little suburban starter house.

Apparently the Mankiw family belongs to a very tiny minority of people who have enought money that they are affected by the estate tax. Either that or he is conveniently omitting a little detail or two from his analysis ... inadvertently no doubt.

Posted by: J_Bean | October 11, 2010 3:59 PM | Report abuse

Somehow I doubt Prof. Mankiw is wasting the time he might otherwise be devoting to giving more paid lectures. He's probably teaching or researching, jobs for which he's being paid already. The question is whether it's better for the economy to have more of his teaching or more talks (or, perhaps more likely, whether it'd be better for him to quit teaching and follow Scholes and Merton into hedge funds).

Posted by: bharshaw | October 11, 2010 4:17 PM | Report abuse

Stop it, Ezra. I have no interest in these "facts" and "reasonable arguments." I already know everything I need to know about the estate tax, and it says rich kids are the best people on earth and poor people are lazy.

In all honesty, though, I am not very hopeful about this country's future when a very large swath of people that do not benefit from tax cuts for the rich in any way whatsoever can be convinced that tax cuts for the rich are exactly what this country needs.

I wish we had any politician from either party that was willing to be honest about the tough choices we have to make. Until that day...

To a brighter future! Cheers!

Posted by: will12 | October 11, 2010 4:24 PM | Report abuse

"And that saving no longer earns 8 percent. First, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains."

Even his fantasy, tax-free world is incredible. The money he invests in companies will give returns commensurate with those companies' growth. If year-over-year growth were to increase from 5.2% to 8% if the corporate earnings tax were axed, it'd be a no-brainer to ax it. It'd roughly translate to that much more in individual income, and revenue as a fraction of GDP from income tax and payroll tax is more than 500% higher than corporate tax revenue.

Posted by: zachinbaltimore | October 11, 2010 4:50 PM | Report abuse

"And that saving no longer earns 8 percent. First, the corporation in which I have invested pays a 35 percent corporate tax on its earnings. So I get only 5.2 percent in dividends and capital gains."

Even his fantasy, tax-free world is incredible. The money he invests in companies will give returns commensurate with those companies' growth. If year-over-year growth were to increase from 5.2% to 8% if the corporate earnings tax were axed, it'd be a no-brainer to ax it. It'd roughly translate to that much more in individual income, and revenue as a fraction of GDP from income tax and payroll tax is more than 500% higher than corporate tax revenue.

Posted by: zachinbaltimore | October 11, 2010 4:50 PM | Report abuse

Is there really a problem with his temper tantrum? Would it really damage anyone?
The only problem with self-important, ivory tower conservatives going Galt is that they aren't going fast enough.

Posted by: ciocia1 | October 11, 2010 5:06 PM | Report abuse

Clearly, Mankiw is making fallacious assumptions to exaggerate the impact of letting the Bush tax rates expire. This is dishonest. But being dishonest was probably his method for advocating for the tax cuts in the first place, when he was an economic adviser for Bush.

Also, there's another factor Mankiw ignores in his idyllic tax-free world: much of the money he earns tax-free would go to paying private providers for all the public services we take for granted. So I hope he enjoys paying $75 in tolls every time he drives on the highway. Exact change please.

Posted by: billkarwin | October 11, 2010 5:19 PM | Report abuse

Also Professor Mankiw should take is own advice. When I plotted the number of articles he has authored by the dates I don't see any fluctuation with tax rates (graph is in link): http://twitpic.com/2wtd41/full

Granted he may make more money on each article now then in 1999, but I doubt it.

Posted by: chrisgaun | October 11, 2010 5:31 PM | Report abuse

Also Professor Mankiw should take his own advice. When I plotted the number of articles he has authored by date I saw no fluctuation with tax rates (graph is in link): http://twitpic.com/2wtd41/full

Granted he may make more money on each article now then in 1999, but I doubt it.

Posted by: chrisgaun | October 11, 2010 5:33 PM | Report abuse

The numbers are actually far more exaggerated than you or Kevin note. Mankiw makes two odd claims associated with his investment returns:

1)He assumes that he pays capital gains tax every year. This is a rediculous assumption. If instead he bought an exchange traded fund tracking the S&P 500, he would only pay annual tax on the dividends. And, since he's leaving the money to his kids, he'll never pay tax on the cap gains, and neither will his kids.

2)Secondly, he claims that his investment returns are reduced by the corporate income tax. This is also false. When he buys stock in the secondary market, he's only paying for the expected value of after-tax cash flows. He ignores the fact that in his no-tax world, he would have just paid a lot more for the stocks he bought. So, the only difference between the real world and the no-tax world is that he would have just bought fewer shares, but he would get the same return on the dollars invested.

Combining these two effects changes his after-tax investment return from ~4% to a more correct 7.6%. If you do the math from there, his estate would have over $4,500, not the $1,700 he claims.

Someone should point this out to Mankiw - he's underestimated his incentive to work by 75%!

Posted by: mbhoffma | October 11, 2010 5:56 PM | Report abuse

Mankiw's stupid article misses the most important part.. he wouldn't do the work for that money..
Great,an up and coming economist will, and then she'll spend that money on say, food or a sports ticket or getting her house clean.. and that money will be paid to someone else.. (it's a mulitplier effect Mankiw) and there you go.. it's good for the economy!
Mankiw wants to save the money so his kids don't have to dirty their hands or brains.
He's what is wrong with America!

Posted by: newagent99 | October 11, 2010 7:44 PM | Report abuse

Jesus, is anyone else just sick to death of folks who have enough money to leave to their kids that they might have to pay estate taxes on whine about how much taxes suck?

How about he live like the 95% of the population Mankiw who don't have any cash to leave to their kids and just hope they won't get laid off in the next year.

Like newagent said...these people need to just stop "producing" already and let the young folks (or competitors) just waiting for guys like Mankiw to get the hell out of the way.

Posted by: vintagejulie | October 11, 2010 8:09 PM | Report abuse

And don't forget the wars they decided to have and not pay for either. It used to be that economists talked about Guns AND Butter, as though you needed to choose. Mankiw (as Bush advisor) decided that the advice as that you could have both -- sort of cost free.

Yippee!

It's the standard Bush question: is he / are they lying or are they stupid. I think we can discount stupid. What a shame. What a hack.

Posted by: grooft | October 11, 2010 8:42 PM | Report abuse

A Policy/Research Question: This year there is, pending legislation, a 0% estate tax. Also this year, the tax break known as the "Capital Gains Pass-Through at Death" is, pending legislation, suspended. Business Week once called this a "tax break you could drive a truck through."

Here goes: I buy an asset for $100, and when I die, it is worth $1000. A $900 capital gain. But if I have not sold it, there has been no tax paid on it--the gain has not been "realized."

I leave the item to my heirs, and they eventually sell it for $1500. So, a pre-death gain 0f $900 and a post-death gain of $500, neither ever taxed.

Now, for assets conveyed this year only, my heirs would pay tax on the full $1400 capital gain. But that is just for this year. Normally, the $900 pre-death gain simply disappears. It is never taxed. That is the "Pass-Through."

Which is more costly in revenue, the tax-break or a 0% percentage rate? An artificial question, to compare magnitudes. The two are independent, and a threshold level would undoubtedly be set before an estate would be affected.

We can't compare the tax revenue achieved over the course of a year, because the capital gains would be taxed mostly in future years, as the assets are sold. But, projecting revenue over a span of years, it seems like something that could be intelligently calculated.

This would have been a Dylan Mathews question, when the desk was open. It would be interesting to know. Perhaps someone is game?

Question #2: Even if the choice were revenue-neutral, would entrenched, immobile dynasties tend to be dislodged by ending the tax-break.

Posted by: DavidKolodney | October 11, 2010 10:07 PM | Report abuse

Of course the usual suspects such as the Wall Street Journal and Mankiw are all about trying to convince us that raising the top marginal income tax rate from 35% to 39.6% would make the geniuses who run our world stop gracing us with their precious contributions. They are essentially threatening to go on strike, like common laborers, if taxes on their income above $250,000 are raised by single digits.

Let's be clear here. We're talking about less than 2% of income earners in the USA. You've met them, if only on the freeway. They're the ones who must be in front of you, even if it means creating a six-car pileup in their wake. These are the cats who are going to pass on the deal that would have made them $3,250,000 this year ($5,000,000 less 35%) because it will only net $3,020,000 ($5,000,000 less 39.6%) next year. Instead, they'll be planning to keep their taxable incomes under $250,000.

What kind of idiots are persuaded by these arguments?

Posted by: Ddeele | October 11, 2010 10:52 PM | Report abuse

OK A few things:

"The first world is worthless. A world with no taxes is a world in which we're all British, or Mexican, and thus paying taxes to someone else."

The first world, one with no taxes, is not one of Mankiw's serious policy suggestions. He uses this world to illustrate his main points, which he does effectively. He demonstrates how taxes affect him and other wealthy people by comparing the real world (the second and third worlds) with a controlled one.

Ezra's second point, that we "would rather have the Clinton economy than the Bush tax cuts" is true of course. But this is irrelevant to his argument. The economic growth during the 90's is attributable to many factors, one of them the tax rates, and many of them completely unrelated. Additionally, some of Clinton's policies had significant positive effects in the short-run, but significant negative effects in the long-run (i.e. The Community Reinvestment Act caused huge short-term gain for low-income individuals and businesses, but is one of the main culprits behind the subprime mortgage crisis.) So, yes, we would prefer to live in a better economy, but the tax rates are not the sole, or even the primary cause of the state of the economies during Clinton's and Bush's years. This argument does nothing to invalidate Mr. Mankiw's argument.

Third, while Klein is correct about the potentially undesirable effect of Mankiw creating a massive trust fund for his kids, this again does not invalidate Mankiw's principal argument. Mankiw argues that raising his taxes will incentivize him to work/produce less and that this will cause negative consequences to people in many income groups in society. Klein does not contest this. However, he rightly argues that, under this logic, Mankiw's kids will probably produce less if they are given more money. But the real problem with Mankiw's kids not having thousands of dollars of expendable wealth is that they will not spend those thousands of dollars (on painting supplies and schools and traveling the world.) Rich people consuming massive quantities of the goods that we make is a pretty significant part of our and any economy.

However, Klein ends his argument very strongly. Even if Mankiw produces less and his kids consume less, poorer people are benefited, in theory, more immediately, more directly and more significantly with the redistribution of wealth through the increased taxes. And of course, if Mankiw is actually responsible for Bush's tax cuts in conjunction with Bush's massive spending, then his intelligence is questionable.

Overall, pretty weak argument though.


Yes, in the same way that I'd rather have apples than oranges. Is Ezra really

Posted by: jremi89 | October 11, 2010 10:59 PM | Report abuse

OK A few things:

"The first world is worthless. A world with no taxes is a world in which we're all British, or Mexican, and thus paying taxes to someone else."

The first world, one with no taxes, is not one of Mankiw's serious policy suggestions. He uses this world to illustrate his main points, which he does effectively. He demonstrates how taxes affect him and other wealthy people by comparing the real world (the second and third worlds) with a controlled one.

Ezra's second point, that we "would rather have the Clinton economy than the Bush tax cuts" is true of course. But this is irrelevant to his argument. The economic growth during the 90's is attributable to many factors, one of them the tax rates, and many of them completely unrelated. Additionally, some of Clinton's policies had significant positive effects in the short-run, but significant negative effects in the long-run (i.e. The Community Reinvestment Act caused huge short-term gain for low-income individuals and businesses, but is one of the main culprits behind the subprime mortgage crisis.) So, yes, we would prefer to live in a better economy, but the tax rates are not the sole, or even the primary cause of the state of the economies during Clinton's and Bush's years. This argument does nothing to invalidate Mr. Mankiw's argument.

Third, while Klein is correct about the potentially undesirable effect of Mankiw creating a massive trust fund for his kids, this again does not invalidate Mankiw's principal argument. Mankiw argues that raising his taxes will incentivize him to work/produce less and that this will cause negative consequences to people in many income groups in society. Klein does not contest this. However, he rightly argues that, under this logic, Mankiw's kids will probably produce less if they are given more money. But the real problem with Mankiw's kids not having thousands of dollars of expendable wealth is that they will not spend those thousands of dollars (on painting supplies and schools and traveling the world.) Rich people consuming massive quantities of the goods that we make is a pretty significant part of our and any economy.

However, Klein ends his argument very strongly. Even if Mankiw produces less and his kids consume less, poorer people are benefited, in theory, more immediately, more directly and more significantly with the redistribution of wealth through the increased taxes. And of course, if Mankiw is actually responsible for Bush's tax cuts in conjunction with Bush's massive spending, then his intelligence is questionable.

Overall, pretty weak argument though.

Posted by: jremi89 | October 11, 2010 11:01 PM | Report abuse

OK A few things:

"The first world is worthless. A world with no taxes is a world in which we're all British, or Mexican, and thus paying taxes to someone else."

The first world, one with no taxes, is not worthless because it is not one of Mankiw's serious policy suggestions. He uses this world to illustrate his main points, which he does effectively. He demonstrates how taxes affect him and other wealthy people by comparing the real world (the second and third worlds) with a controlled one.

Ezra's second point, that we "would rather have the Clinton economy than the Bush tax cuts" is true of course. But this is irrelevant to his argument. The economic growth during the 90's is attributable to many factors, one of them the tax rates, and many of them completely unrelated. Additionally, some of Clinton's policies had significant positive effects in the short-run, but significant negative effects in the long-run (i.e. The Community Reinvestment Act caused huge short-term gain for low-income individuals and businesses, but is one of the main culprits behind the subprime mortgage crisis.) So, yes, we would prefer to live in a better economy, but the tax rates are not the sole, or even the primary cause of the state of the economies during Clinton's and Bush's years. This argument does nothing to invalidate Mr. Mankiw's argument.

Third, while Klein is correct about the potentially undesirable effect of Mankiw creating a massive trust fund for his kids, this again does not invalidate Mankiw's principal argument. Mankiw argues that raising his taxes will incentivize him to work/produce less and that this will cause negative consequences to people in many income groups in society. Klein does not contest this. However, he rightly argues that, under this logic, Mankiw's kids will probably produce less if they are given more money. But the real problem with Mankiw's kids not having thousands of dollars of expendable wealth is that they will not spend those thousands of dollars (on painting supplies and schools and traveling the world.) Rich people consuming massive quantities of the goods that we make is a pretty significant part of our and any economy.

However, Klein ends his argument very strongly. Even if Mankiw produces less and his kids consume less, poorer people are benefited, in theory, more immediately, more directly and more significantly with the redistribution of wealth through the increased taxes. And of course, if Mankiw is actually responsible for Bush's tax cuts in conjunction with Bush's massive spending, then his intelligence is questionable.

Overall, pretty weak argument though.

Posted by: jremi89 | October 11, 2010 11:02 PM | Report abuse

@jremi

The CRA? really?

Get your facts straight, it was initiated under Carter not Clinton. It has been amended several times including by Clinton but also by others.

The CRA had little or nothing to do with subprime, the vast majority of those loans were mad by institutions that don't fall under the CRA.

Also, the CRA mandates more information, not less, so the loan default rate is very low in comparison.

Posted by: fitzptrk | October 11, 2010 11:39 PM | Report abuse

Everyone with this point of view forgets that most people will inherit their parents' money in their late 50's, at the end of a long productive work life. They will most likely share it with several siblings.
My preference: An estate tax of 35%, after $5Million exemption. The 2009 rate of 45% (plus state taxes of up to 16%) is punitive.

Posted by: robmeeker4 | October 12, 2010 8:02 AM | Report abuse

Bush tax cuts needs to go. Respected former fed. chief Allan Greenspan also agreed to this in an interview. His point being do not barrow from China to wage wars and give tax cuts.

I think he is very clear. We should get away from our responsibility of paying taxes and mortgage our kids and grand kids earnings to China.

Posted by: sasidhargv | October 12, 2010 9:53 AM | Report abuse

My goodness you people just don't get it. You think Greg is complaining? He doesn't really care if he pays more taxes or not, thats not the point at all. He's using a hypothetical example to illustrate a point. Like Klein, he tried to keep it as stupidly simple as possible so that most of the not-so-bright part of middle America might be able to wrap their head around it. The point he's making is still completely valid.

The real problem with all you clowns who think that the rich should be taxed more is that you have the wrong perspective. In your world, the government lets him keep whatever % of income they don't steal in taxes. What you should be considering is that Greg and all those other people making that kind of money have, in most cases, EARNED it themselves. They already pay the vast majority of taxes in nominal and percentage terms. How much more do you liberal clowns think is appropriate to steal from them? The problem we have is not that the rich aren't paying their fair share, its that Obama and the other big progressives in history keep enacting entitlements that transfer money from the rich, to the bottom 50% of earners. Its maddening. You are also stealing from the future with all your debt financed entitlements to help construction workers and public servants. Like it or not, the economy is globalizing and you simpletons who want to just shovel dirt all day and expect to make a "fair wage" need to get it in your head that you might have to THINK to make a living.

Lets also not pretend that every single family that is "struggling" to get by is pious and wastes nothing. I would be willing to bet a lot of them buy their kids an xbox, drive an F150 instead of a Carolla, and go on vacations. And guess what? No one said its your right to go crazy and have 6 kids! Stop having kids if you can't afford them. No one wants to talk about it, it taboo to even bring it up. Its some sort of right to just pump out as many kids as your heart desires, or because you can't figure out how to use birth control. When you have a kid its your responsibility to provide them with the necessities in life, teach them the value of education, and do your best to ensure they don't grow up to be a bum.

The real problem is not that the rich don't pay enough, they pay plenty. The real problem is class envy. I have compassion for the small percentage of people who really have it rough, and i think that we should help them, but enough with the entitlement programs. We really don't know how much they'll cost (CBO estimates are a crapshoot at best), but whatever, we'll just make massive promises now and when the fiscal house comes crumbling down we'll just turn to the rich and decide that they don't need that boat. Lets just tax them more, god they are so evil for being successful.

I am not rich, but I sure hope I make it there one day. I don't envy them, I aspire to achieve the success that most of them have earned themselves

Posted by: donopj2 | October 12, 2010 10:54 AM | Report abuse

donopj2 said - "Like it or not, the economy is globalizing and you simpletons who want to just shovel dirt all day and expect to make a "fair wage" need to get it in your head that you might have to THINK to make a living."

So it sounds like you need a government that invests in higher education in order to create a population that can think well enough to get through a BA or BS. Yet the Conservative plan is to cut education spending by a fairly large amount. Right now the unemployment rate among people with at least a BA or BS is $1M/yr) are very high, like 50 %. A company that finds itself with some extra money at the end of the quarter would be less likely to heap all of this upon their most highly paid executives knowing that 50 % of it is just going to be taken away. Instead they would be more likely to spend it on worker training, research & development, capital investment, or (god forbid) increasing wages for folks at the bottom. It's no accident that as high-end taxes decreased, wage inequality increased. It's not about the Federal government making money, it's about encouraging responsible behavior by businesses.

Posted by: klautsack | October 12, 2010 12:17 PM | Report abuse

It's really depressing to see Klein's whole line of thought here:
"Economists measure two separate impacts from taxes. The first, the one most people know about, is that taxes make you work less because they lower the reward. The second, however, is that they make you work more because you need to work more in order to make enough money to live the way you want."

The third is that I have less money to invest in my own business or as an angel for others that want to start businesses. The fourth is that I simply get annoyed that my money is being sent to lazy people, rich retired people, hypochondriacs, over priced doctors, people that didn't pay enough taxes to cover their own retirement benefits, etc. There are lots of good and "deserving" people receiving some of the money I earn, but even they don't thank me, or show any appreciation. They just look for politicians that want to take more money from me and less from them. You're welcome...

Posted by: staticvars | October 13, 2010 12:35 AM | Report abuse

This is really an amusing group of clueless non-economists. First, Mankiw was using the estate principle of demonstrating how taxes impact total growth in money and, thus, might be a disincentive for some to take the writing job.

Second, he is not talking about not paying taxes but the marginal tax rate applied to earning that next dollar under a progressive tax system. In the beginning levels of income earn. people are willing to overlook increases in marginal tax rate so that the can eat, provide shelter, etc. But at some point that marginal rate disincentivizes a person's actions which is what Mankiw is talking about. At some point, earning that extra dollar is not worth the time lost playing with his kids, reading or doing some other enjoyable event because of the amount taken in taxes. The higher the marginal tax rate of earning that extra dollar results in more people not taking those jobs. That means less wealth earned that can be used to consume products or services, or invest in companies or research and development. It also means the less the government takes in taxes because a 50% tax rate on zero dollars is zero while a 30% tax rate on $1000 is $300.

Third, his services of writing an article for $1000 might be replaceable but it is not a zero sum game. While another economist might replace him in writing the article that economist might not be paid the same amount (resulting in lower income tax revenue) nor earn the same number of web hits to generate the same level of income a Mankiw article would (resulting in lower revenue and profits for NYT). That results in a further loss of revenue not only for the NYT but also the government via taxes.

His point is about other non-individualized services out there. With the future application of the marginal tax rate jumps at 200K and 250K for single filers and married files and add in the 3.8% medicare tax rate that will claw back into someone's income derived from labor and also investments/dividends/capital gains, there is a large disincentive to work to pierce that 200/250 line. If a self-employed consultant, gets close to that line in late November, that person is going to have to do a tax calculation on whether it makes sense to take that next job that would put that person over the 200/250 tax line for that year. If it results in a high enough profit, they'll take the job but if not they might just defer the job to the following year. Instead that consultant takes a vacation the last month of the year or just do marketing to line up income for the following year. While that deferred job might be filled by someone else, there will be a crowding out effect as jobs pile up that haven't been filled. You also have the effect of lost tax revenue because the government cant tax what is not created.

Lastly, anyone that thinks tax decisions are not impacted by marginal rates is not paying attention to reality. There are reasons there are big outlet malls right on the DE border.

Posted by: SteelHop | October 13, 2010 11:10 AM | Report abuse

Also, Ezra's stock market facts are slight disengenous given the time frame he created to support his argument. Not that he is wrong just you can slide that number around to make it look better or worse.

Posted by: SteelHop | October 13, 2010 11:35 AM | Report abuse

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