Higher Taxes Make You Work Less, Because You Don't Like Money

Does anyone still believe this? Former GWB advisor Greg Mankiw has taken the time to compose an article reiterating the old line that taxes make people not want to work. And I took the time to read it. Call me a masochist.

Oh boy. Here we go.

You wanna read it first? Here it is. Knock yourself out.

There are a few completely dishonest calculations in the piece. And a few assumptions that rankle. But the basic concept is one that's always irked me. That is, "I'd rather have nothing than have something of which I have to give part away."

We've heard it before. Taxes are a disincentive to work. Really? I can see how people might not like paying their taxes. I can see how people may argue over how much is too much. (Is 30% too much? How about 50%?) But I cannot understand people saying that because any amount is taxed, they won't bother making any money because it just isn't worth it to them.

Mankiw begins by saying that he's doing just fine, thank you very much. But what should he do if someone asks him if he'd like to make a few bucks at a speaking engagement? Apparently the answer is to turn it down. Not because he doesn't need the money. (He doesn't. Remember?) But because he wouldn't be able to leave as much of it for his children as he would if there were no taxes of any kind. Not lower taxes, mind you. No taxes. Oh. Okay.

Here's his logic, such as it is.

"Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000. That is simply the miracle of compounding."

That is simply the miracle of bullshit. Because the no-tax scenario does not exist, why are we talking about it?

But now we're not just talking about taxes here, it seems. He has now invested his money in a company that is doing very well and his $1000 has magically transformed, 30 years from now, into $10,000. Nice. But what's wrong with just having the $1000 you earned in the first place? Well, nothing. Unless your aim is to make the point that $1000 is really $10,000 and you need a benchmark with which to whip that original sum. So find a way to make it $10,000.

"Now let’s put taxes into the calculus. First, assuming that the Bush tax cuts expire, I would pay 39.6 percent in federal income taxes on that extra income. Beyond that, the phaseout of deductions adds 1.2 percentage points to my effective marginal tax rate. I also pay Medicare tax, which the recent health care bill is raising to 3.8 percent, starting in 2013. And in Massachusetts, I pay 5.3 percent in state income taxes, part of which I get back as a federal deduction. Putting all those taxes together, that $1,000 of pretax income becomes only $523 of saving."

It must be true. It's calculus! Okay. Now we're down to $523 after taxes. But hold on. We're assuming the top marginal rate, and we're assuming the GWB cuts expire. (Should we really assume that?) And we're also assuming a tax rate (Medicare) that doesn't begin for another three years. Still, even so, you have $523 left, right? That's something. Oh, wait. More horrible horrible taxes that make making money just not worth it.

"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. Then, on that income, I pay taxes at the federal and state level. As a result, I earn about 4 percent after taxes, and the $523 in saving grows to $1,700 after 30 years."

Okay, so now he's comparing a theoretical 8% return on an investment with only 5.2%, which is still pretty damn solid, particularly in today's economy. But now we're down from the completely untaxed and wisely invested $1000 becoming a nice fat $10,000 (in 30 years) to it being only $1700. A mere pittance. Oh, but he's giving it to his kids, right? I think we know where we're going next.

"Then, when my children inherit the money, the estate tax will kick in. The marginal estate tax rate is scheduled to go as high as 55 percent next year, but Congress may reduce it a bit. Most likely, when that $1,700 enters my estate, my kids will get, at most, $1,000 of it."

Ah, yes. The estate tax. Again, we're assuming the top rate here. Which doesn't yet exist. So, Mankiw's horrible horrible scenario comes down to working for $1000 and having his kids inherit $1000. In the absolute worst-case scenario. Which doesn't exist. I'm crying here. Hey, Greg. Tell your kids to get a job instead of waiting 30 years to get that lousy $1700.

"HERE’S the bottom line: 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?"

No. But not for the reasons he states. He doesn't work because he has enough money already. If he needed more, he'd take the assignment. If he didn't have any money at all, would he not take it? Would he rather have the $523 or $0? Has he never worked in his life? Because he's paid taxes at these rates already, presumably, if he has. But why? He says he has no incentive. And yet...he's worked. And continues to do so. This article's existence is proof.

Mankiw's argument seems to boil down to not wanting to pay any taxes. So apparently if someone said to Mankiw, "Hey, I'll give you 1000 bucks to do something" he'd say yes. But if they said, "Hey, I'll give you 2000 bucks but after tax it will end up being 1000 bucks" he'd say no. This makes absolutely no sense.

The equation shouldn't be "how much is going to the government". It should be "how much is going to me". If the answer to the last question is more than zero, then you have an incentive to work. If you don't, it's just spite.

Let's kick Mankiw out of this scenario and pop in an actual person, Joe Schmo. Joe isn't in the top tax bracket. Joe has rent to pay. And food to buy. Joe gets an offer of $1000 to write an article. Joe knows that he'll probably only take home about $750 of it. (Because he isn't in Mankiw's bracket.) So, Joe can a) take the job and have $750 towards paying his rent or b) not take the job because the taxes have taken away his incentive to work. Gee, what do you think he does? His incentive to work is paying his fucking rent.

And another thing: Joe isn't going to invest his money (which, contrary to what Mankiw says, could result in him ultimately getting nothing, if the company goes under). He's going to spend it. So the "miracle of compounding" never plays into it. And the evil estate tax is immaterial. Even if he did have $1000 to leave to his kids 30 years from now, unless he had another $1,999,000 to add to it, there would be no estate tax for his kids to worry about. None.

Mankiw's article is the most elitist piece of crap I've seen in the NYT, or any media outlet, in some time. And here's how he ends it.

"But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden."

So, if what he's saying is true and he won't take that writing job because he doesn't need the money and he's disincented anyway because of his tax burden, then guess who gets the job. It's Joe Schmo! So Mankiw's last statement is, by his own logic, false. Because Joe now has $750 that he wouldn't have had if we didn't tax Greg Mankiw. Who is a schmuck.

Dumb Letters: Still Not Paying for That

Rarely is such a clear distillation of a simple-minded mindset presented to us. I can't even call it an ideology because it doesn't even rise to that level.

From today's LA Times.

I am not so worried about the employee retirement program that will reduce the city of Los Angeles' civilian workforce at least 9%. It all boils down to priorities. In order of importance:

1. Tax cuts.

2. Tax cuts.

3. Tax cuts . . .

26. Tax cuts.

27. Make sure the city can be a reasonable place to live.

There is always fat and waste to cut.

Yep. The myopia about tax cuts is just mind-boggling to me. It says a lot about the anti-government forces that they have nothing else to add to the discussion other than "I don't want to be taxed so much." There is never a discussion about where the tax funds are going, whether the assessment is progressive enough or whether anything worthwhile is being done with those funds. All that matters is their personal bottom line.

It's most hilarious when they tack on to their "list" that the only other thing anyone should do is "make sure the city is a reasonable place to live". Yes, we'll do that by cutting taxes. Which pay for roads, parks, police, sanitation and schools. Smart.

The Taxation of My Patience

Remember this quote from "The Man Who Shot Liberty Valance"?

"When the legend becomes fact, print the legend."

It was about a newspaper man refusing to print the truth because...oh, what the hell, let's mix our aphorisms, "A lie gets half way around the world before the truth gets its boots on." In this case, the lie was all the way around the world and it just wasn't worth chasing.

Words matter. Spin works. And the Republicans have been calling the estate tax "the death tax" for so long that even mainstream media outlets have no problem calling it that. It looks like the LA Times has flat-out given up. Check out the title of this editorial.

You read that right. Just in case you didn't, here it is again.

The Taxation of Death

We can argue until we're blue in the face about whether the estate tax is a nice thing or the end of civilization as we know it. Everyone is entitled to their own opinion. But they aren't entitled to their own facts. In this case, death is not taxed. Death never has been taxed. What is being taxed is inheritance. And, more importantly, the estate tax is not actually called "the death tax". Never has been, never will be.

The fact that the word "estate" implies a lot of money is one of the reasons it's never used by its opponents. Taxing estates? What could be wrong with that? But taxing death? Unfair! 98% of beneficiaries or heirs (more words they don't use) will never be subject to it. And the ones who are subject to it should consider themselves fortunate. Even after Uncle Sam takes his bite, they're still inheriting at least a million bucks. Oh no! Poor them!

This is not a tax on death, it's a tax on income. Income which was not earned by the person receiving it. Unless the tax goes up to 100%, then the argument that people want to leave something to their children and can't just doesn't fly.

But, as I mentioned, the real issue I have here is not the merits of the tax but the use of language. The LA Times has succumbed to the right-wing spin machine by adopting their terminology, which is entirely unofficial and entirely inaccurate.

Here's the opening line:

The old saw about the only certainties in life being death and taxes isn't quite right: We'll also always be arguing about the taxation of death.

Now, the editorial actually raises some valid points about some upper-middle-class folks getting socked with a wee bit of pain. And they do use the word "heirs", to their credit. This is all good. But to promote the canard that the thing being taxed here is death and not non-earned income is inexcusable.

Please, LA Times editors. Stop.

Democrat Is a Relative Term

I used to live in a place called Staten Island. It's a dreary place that I am glad to be rid of. There are many things to dislike about the rock. (To be fair, it has a few charms, but these are vastly outweighed by its uglies.) But among the worst is its politics. As a recent movee, I still get the campaign literature from the candidates there. This is what passes for a Democrat in Staten Island. It's a flyer from New York City Councilmember Ken Mitchell. (Yes, I voted for the guy. Oy.) Notice the complete absence of the words "Democrat" or "Democratic Party", although his website mentions an endorsement from the SI Democratic Party.





Can you read that? Here's what the bullets say:

• Fighting to restore fiscally responsible local government.
• Working to make state budgets spend only what the voters of Staten Island are willing to pay in taxes. [MAB: what, like nothing?]
• Championing tax relief for our senior citizens.
• Listening to the voices of local businesses and residents who want solutions that do not require increasing their tax burden nor expanding the scope of government.
• Supports legislation that will require at least a two thirds vote of all council members for the passage of any law or resolution that raises taxes.
• Securing property tax rebates for Staten Island homeowners.
• Has fought to cut waste and unnecessary spending in the city budget to hold the line on taxes.

Wait a minute, I thought we were the party of tax-and-spend. So Kenny is totally against all of these horrible taxes? Okay, fine. So let's just not spend anything then. Every one for themself. But geez, Kenny. That two-thirds-to-raise-taxes thing hasn't worked out so well for California. The state is considered by many to be ungovernable.

Hey, what's this? Another flyer.




The bullets again:

• Fighting to restore vital services to the seniors of Staten Island.
• Keeping open senior centers which were threatened with closure.
• Saving transportation programs which provide buses for our seniors to travel to medical appointments, shop for groceries, and visit family and friends.
• And then a repeat of some of the same anti-tax bullets from the last flyer.

Do I need to ask the obvious question? Where is this money supposed to come from? The schools, maybe? How about the roads that everyone out there complains about? Or the already woefully inadequate public transportation? Yes, let's keep special programs to get old people to the grocery but forget all of those (black) people who have to take the bus to get to work (and the grocery). And, I don't know, help the economy.

The flip-side of the flyer says "Our seniors have worked hard, fought to keep our country free and the world safe, and taught and supported the next generation. In short, they've done everything right. WE HAVE TO DO RIGHT BY THEM!"

Talk about generalization. All of them did right? Everything right? All of them fought the commies? All of them taught and supported the youngsters? Not that old fucker who lived down the street and called the cops whenever we got near his yard. I'm not giving that bastard a ride anywhere. He can suck it.

We should have just let these knuckleheads secede and find out just how difficult government and budgeting really is. But we needed a place to dump our trash. Now that Fresh Kills is closed, the place has no purpose, other than as a shortcut to Philly. Good riddance, Stupid Island.

Dumb Letters: I'm Not Paying for That Either

From today's NYTimes, a response to an editorial concerning a potential tax on soda and other sugar-based empty-calorie drinks.

What happened to personal responsibility? What happened to parental responsibility? When did taxation become the best solution to any problem? Is the federal government the only entity in our country that can raise children now?

This is just another idea on how to raise money for state-sponsored health care with a fig leaf of a reason to do so. Let’s try removing soda machines from our schools, providing healthier school lunches and ensuring that our gym classes are financed. There are plenty of commonsense things that can be done to achieve healthier progeny, alas not many that simultaneously finance health care.

Hmm. Looks like this isn't a person who really cares much about this issue. It's just a knee-jerk anti-tax response.

Let's begin with the opening statement. We've got four rhetorical questions. Questions 1, 2 and 4 are the standard libertarian mantra that we're all responsible for our own lives and government should just butt the heck out, cultural forces be damned. But these are a bit of a smoke screen for Question 3, which is basically "stop taxing me". For anything. Ever.

How do we know this is the real issue? Let's go to paragraph 2, wherein the writer gives us some other "ideas" on how to reduce obesity in children. (I should point out that, contrary to the suggestion by the writer that these are original ideas, almost all of them are suggested in the editorial about which this letter was written.) So, if government doesn't have solutions to our problems, why are you suggesting them? Who's going to kick the soda machine vendors out? And how do we make up the lost revenue when they do? And how, pray tell, do we propose to finance those gym classes? Surely not taxes. Taxes are bad, in case you haven't heard.

The writer probably has a 12-Coke-a-day habit and isn't interested in having to shell out a few more bucks to feed his habit. The fig leaf is on this writer, who is so against "socialized" health care that any tax on anything that may be used to provide it in any form must be seen as bad.

I Refuse to Make Any Teabagging Jokes

Sorry. Over it.

Here's a photo from Salon's Mike Madden, currently tweeting (hate...that...word) from D.C.'s Lafayette Park, where a bunch of idiots are pretending that returning the marginal tax rate on the very wealthiest Americans to 10% lower than it was during most of Ronald Reagan's presidency is some kind of unprecedented tyrannical socialist crime against America, worthy of not just protest but revolt.

The vast majority of the people at these protests actually had their taxes lowered by Obama. So maybe they're really protesting the higher rate they have to pay today. See? It's all just a big misunderstanding. Wait 'til next year.

The whole concept behind these "protests" is ludicrous, of course. And it's a pretend "grassroots" protest (aka Astroturf), which was actually orchestrated by Fox News and Dick Armey, who never met a rich person he wouldn't defend. I'm sick of it already and I don't feel like getting too far into it.

But I did want to comment on the particular stupidity of this sign. So there's this quote from the unassailable Abraham Lincoln juxtaposed with a non-quote from Barack "Don't Forget the Hussein" Obama, president of someplace called "Ameristan" (xenophobic much?). See, he wants all yer munny fer his stinky gov'nt.

But wait, what was Lincoln's full quote again? Oh, yeah. "[A] government of the people, by the people and for the people". Whoops. They skipped the government part there. That changes things a bit. Or it should, anyway. See, America is governed by its people. That's the whole freaking point of what Lincoln said. I know that in practice this isn't always true. And the right has done a great job of turning "gov'nt" into the hated other, rather than something we (should) own, even while running it themselves. (A neat trick, that.)

But really, people. We still have a representative government. And right now, it's doing what the people elected it to do, for the most part. The whole premise of this sign is either wholly ignorant or wholly dishonest. Either way, it's false.

Screaming your head off that this is some form of fascism because Glenn Beck told you to just makes you look really really stupid. Get over it, people.

Dumb Letters: And Yet More Bad Economics from Scary McStupid

Geez, they're really pushing this one. Here's one from the Boston Globe, responding to a columnist's suggestion that Massachusetts, which has a flat income tax, might try >gasp< progressive taxation.

TOM COSGROVE advocates changing our state constitution so that those who make at least $250,000 could be taxed a little more in tough times. He writes, "The constitution currently mandates that the state tax all citizens, regardless of income, at the same rate," and argues that progressive taxation is "the fairest way to distribute the tax burden." Since the wealthiest are a quiet minority, they are being discriminated against. We can call it wealth redistribution, or proclaim it is fair, but at its core it is discrimination. What would happen if we proposed a higher tax for women, or blacks, or gays? The outcry would be enormous. Just because someone makes more money doesn't mean they should pay more than those who don't. Do they drive more on the roads or use the educational system more?

The wealthy minority who are being targeted by President Obama's proposed budget are being treated unfairly. There will be a backlash. Charitable spending, entrepreneurialism, and small-business hiring will be affected.

Call these moves that Cosgrove wants for the state and the president wants to implement for the country what they are: discrimination in its purest form.

Kevin A. Richardson II
Beverly

This has more holes in it than Dunkin' Donuts at 6AM. I almost don't even want to say anything and just let this one stew in its own stupidity without comment. Alas, I cannot. I do it for you, dear reader. And for me. I need to vent.

"What would happen if we proposed a higher tax for women, or blacks, or gays?" How mind-boggling is it that this jerk is comparing progressive taxation to a civil rights violation? Oh no! The poor rich! Who are...A MINORITY! Woe unto them and the horrible unfair burden of paying a bit more to keep their state functioning at a barely acceptable level for those lousy free-loaders.

"Just because someone makes more money doesn't mean they should pay more than those who don't." Um, yes it does. Blood from a stone and all that. "Do they drive more on the roads or use the educational system more?" By this logic, even a flat tax is unfair. Everyone should pay the same amount in total, rather than a percentage of their income. Is that what this meathead is arguing? Everyone drop your $50 in the bucket and we'll call it a year.

"There will be a backlash." Ah, yes. Just like in yesterday's letter. The rich will rise up and take their country back. By not hiring people. Listen, nobody hires anyone out of altruism. They do it to make more money. Except maybe the person who wrote yesterday's letter, who seems to have some other issues. If you have a need, you will hire someone. Your tax burden has virtually no effect on that. And the charitable giving that you won't be doing? Unnecessary if we just give it straight to those people in the first place. So go ahead and shoot that hostage.

"Call these moves that Cosgrove wants for the state and the president wants to implement for the country what they are: discrimination in its purest form." Maybe not its purest form, but it is discrimination of a sort. The good kind. Discrimination isn't always a bad word. "Hey, why are only criminals being put into jail? That's discrimination!" "Why are only really talented people allowed to play left field for the Red Sox? That's discrimination!" "Why am I not allowed to have sex with Kevin A. Richardson II's wife and daughter(s)? That's discrimination!"

Ha! How fanciful my hyberbolic examples are. In reality, I would never have sex with anyone who would marry a creep like this.

Dumb Letters: Reaganomics Redux

Here's a pre-translation of the following letter from the LA Times: "I'm a selfish fucking bastard."

I'll take this one piecemeal.

I have employed about 50 people during the last 20 years, and my
family's taxable income is about $300,000. In order to avoid paying a higher percentage of taxes on all of my income, I will decrease output, lay off some staff and still end up keeping the same amount.

Wait a minute. If you're keeping the same amount either way, why on earth would you lay people off? You're saying that if it's all the same to you financially that you'd rather see someone else lose their job than to have more money go to the government in the form of taxes? This may be the most offensive thing I've heard in quite some time.

This person should not be employing anybody. She's like a child who grabs a toy that she doesn't want just to keep another child from having it. And then hits the other child in the head with it. I hope the person who gets laid off robs their former employer's house. And the cops don't come because they had no tax funding.

I have no incentive to hire people or expand my business, because the more I make, the more President Obama will take to expand government. This discourages expansion of the private sector. It will backfire with disastrous consequences for all.

Really? No incentive? None? This is one of the most tired arguments I've ever heard. It is a rare person caught between two tax brackets that will actually lose money by making a bit more money. If you're one of those people, then you do have an incentive to make more money: make more money. If you currently make (and I'm just making numbers up here, for the sake of argument) $300,000 and are taxed at x% but will be taxed at x+(x*0.10)% if you make $350,000, then your incentive is to make $400,000. And don't you want to make $500,000? More really is more, in almost all cases. The idea that higher taxation discourages expansion of the private sector is plain and utter bullshit. Yes, the more you make, the more you will pay in tax. But the more you make, the more you keep for yourself as well.

Oh, and I love how it's about Obama "taking" her money to "expand government". Everyone already gets taxed. The only question is how much. This is nothing new. The supposedly "disastrous" consequences of progressive taxation have never materialized. Ever.

It is repulsive that Obama is being allowed to take this country backward by pickpocketing the very people who run the private sector through their energy, money and creativity.

Kay Santos
Diamond Bar

It is repulsive that a cheap, manipulative dirtbag like yourself is in a position of power over anybody. If there were a tax on being an asshole, you'd be flat broke right now.

The whole idea that people like this are somehow being stolen from is laughable. This person admitted upfront that she would take a job away from someone out of spite, even if she gained no financial benefit from it. And we're supposed to feel bad for her? Fuck you.

Obama is indeed taking us backward. And not nearly fast enough. To a time when Reaganite prevarications like the letter writer's were routinely discredited. To a time when progressive taxation was the norm and we had a pretty robust economy, thank you very much. If this person doesn't like it I won't lose any sleep over it. But at least the person who gets fired by her will have better unemployment benefits.