Monday, October 18, 2010

Taxes destroy wealth

by reducing Greg Mankiw's incentive to work.  He compares his take home pay for taking on an "extra" edting assignment with no taxes to the take home pay he would earn after the Bush tax cuts expire:

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?

The comparison is unfair, as it compares no taxes to some taxes, but it is done to illustrate how the effect of seemingly small changes in marginal rates "compounds" the effect of taxes over the years.

1 comment:

  1. I am no liberal, but I don't get this argument. If higher marginal tax rates reduce the incentive to work, why are income distributions expanding not contracting? Presumably the poor, with very low, even negative margin tax rates would have far more incentive to work more, yet they make less and less in a relative sense...