OMG - Real Economics

Breaking: Truth Printed in NYT!

Either a snoozing Professor Mankiw, or a NYT reader dropped dead from shock? Breaking: Truth Printed in NYT! is how Ann Coulter linked to I Can Afford Higher Taxes. But They’ll Make Me Work Less.  Written by Harvard professor N. Gregory Mankiw, who admits to "earning more than $250,000 a year," it is indeed odd to read this in the Times. Here's an excerpt. “ 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. 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. 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. 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. HERE’S the bottom line: I Can Afford Higher Taxes. But They’ll Make Me Work Less. Wow.  $250K+.  I coulda been a contender, but heard teachers weren't paid well.  If he starts teaching this to his students, who knows; Harvard grads might start making a positive contribution to society.