I Can Afford Higher Taxes. But They’ll Make Me Work Less.-NYT - What nonsense!

[JohnWxy]

here's the article actually published in the NYT. THe author presumes to offer a legitimate analysis of the impact on his income if the Dems let the Bush tax cuts expire for those making over $250 K.

http://www.nytimes.com/2010/10/10/business/economy/10view.html?scp=1&sq=Suppose%20that%20some%20editor%20offered%20me%20$1,000%20&st=cse

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: 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?

THis 'analysis' is of course, nonsense. He is calculating the bottom line effect of one income tax rate plus every other tax he pays plus the estate tax.

Of course, he should be comparing the after tax affect with the Bush tax cuts retained to what he would be paying for the additional $1,000 in income if the Bush tax cuts expired.

Since he didn't do that, I did. the net difference? ... $44. With the tax cuts retained he would end up with $567 after tax from the additional $1,000 of income. If the tax cuts expire he ends up with $523. Net difference: $44. https://sites.google.com/site/republicandystopia/tax_bullshit">See excel spreadsheet.

Now, if he really wants to compare after tax income with all taxes to after tax income with NO TAXES AT ALL, then perhaps he should consider what life would be like without a national, state and local governments?


Thanks goes to alp227 for making me aware of this utter nonsense: http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=565508&mesg_id=565508

I confess I wanted my debunking of this boloney to get maximum exposure with its own thread as I found out I could not post a comment on NYT site.

[pnwmom]

1. Here's to your maximum exposure. K & R. n/t

[iamjoy]

2. It's True!

When a former mid-level manager now on unemployment compensation is offered a job making $20,000 a year, it is understandable that he/she won't take it because of the higher taxes and costs associated with working. I mean, even looking at income to income, he'd only be getting an additional $6,000 or so per year. Why bother?

And, when a mother on welfare, doesn't want to take a minimum wage job because it would reduce the amount of financial aid she gets and she'd have to work rather than spend all day playing with her child.

They aren't lazy, see, they've done the cost/benefit analysis.

[Kat45]

3. The writer "was an adviser to President George W. Bush."

'Nuff said.

[pnwmom]

4. Kicked again. For exposure! n/t

[unblock]

5. "any wonder i turn down most money-making opportunities"

well, duh. anyone who has plenty of money is bombarded with money-making opportunities and even the most aggressively greedy of them turn down most because they can only invest in so many different things as a practical matter. that does NOT mean any of their money is idle!

in fact, when deciding to invest your money at all in a money-MAKING opportunity, the only question is whether or not there is somthing BETTER to be doing with your money. if sticking it under a mattress is better, so be it, but that's not the case if it's a money-MAKING opportunity. making a sure 0.5% interest, even if 90% of it is taxed away in the author's tea-party fantasy hell, that's still 0.05% better than the mattress. so any remotely rational person would do it. and grumble about how they can IMAGINE making more, but in practice, they have no better option than to engage in productive economic activity.

the only time the mattress is better is when the safety of the mattress is more of a lure than the upside potential of the money-making opportunity because of the downside risk. but the downside risk is actually SOFTENED by a high tax rate because you can use a loss to offset gains elsewhere. so if you LOSE a million dollars from a risky venture, uncle sam will reduce your taxes by $900,000 (again, if the tax rate really were 90%). so we're back to it not being a problem it invest in something productive even if it's risky.

[dem mba]

6. great rebuttal here

http://www.ritholtz.com/blog/2010/10/10-questions-for-greg-mankiw/

for the record, my grad school finance (or was it economics?) was written by...wait for it...Professor Mankiw. His bias was evident in the book, of course.

[snot]

7. We might be better off if some high-earners "worked" less.

[JohnWxy]

8. while examining tax impacts the professor might consider Harvard's preferential tax treatment

(I had to get off-line shortly after posting OP last night so this had to wait till now.)

The Harvard professor has an interest in taxation. Maybe he should ponder the tax benefits his employer enjoys:

http://www.thecrimson.com/article/2009/5/21/harvards-role-as-a-nonprofit-harvard/


"The key difference concerns taxes. As a nonprofit, Harvard receives tax exemptions, deductions, and privileges that for-profit institutions must forgo. For example, besides innovative investing techniques, Harvard was able to build its endowment from $4.7 billion in 1990 to $37 billion in 2008 because it did not pay taxes on those gains. Relative to businesses, the federal government is subsidizing Harvard’s investment fund."


"In addition, Harvard does not pay real-estate taxes. Instead, it makes voluntary payments in lieu of taxes. Last year, for all of Harvard’s property, it paid $1.9 million in lieu of taxes to the City of Boston. Boston officials estimate these payments would be 10 times as large if Harvard paid real-estate taxes."

"As a nonprofit, Harvard also benefits from tax-deductible donations and a significant amount of federal grant money. Last year, Harvard received $651 million in donations. If donations to Harvard were not tax-deductible, this number would be a small fraction of this total. According to Harvard’s Office of Government, Community, and Public Affairs, Harvard received $535 million in federal grants in fiscal year 2008 that accounted for 82 percent of Harvard’s research revenue. Under the federal stimulus package, federal grants to Harvard are expected to increase considerably. Non-federally funded research is made possible through tax deductions on donations made by corporations and foundations."

"Massachusetts legislators and Smith economics professor James Miller have advocated for taxes on large universities. The current proposal calls for a 2.5- percent tax on university assets valued at over $1 billion. If the state of Washington taxes Microsoft, they argue, why should Massachusetts not tax Harvard?"

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http://www.boston.com/news/education/higher/articles/2009/06/17/harvard_classrooms_labs_feel_pinch_of_budget_cuts/

"Harvard’s $36.9 billion endowment"

"The endowment supports a third of the university’s $3.5 billion operating costs.."
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Note that earnings from investments accrue to Harvard free of taxes. Now, do I think Harvard should NOT enjoy this favorable tax treatment? Absolutely not. I am totally in favor of education. It's the basis for our future prosperity, and necessary to have an population capable of governing itself (to the degree that it cares to).

But, if the good professor wants to look at the impact of taxation he might consider what his salary would be if his employer did not enjoy the tax advantages it does.

My guess is the professor would find the loss of revenues to the Government to help out Harvard is worth it. But there is a loss in tax revenues from his employer - to local, state and federal governments. This favorable tax treatment suppoorts the good professors salary.. but my guess is he's okay with that...even if it does raise his 'infernal' tax bill a bit.

[jmowreader]

9. This is a very strange calculus, to be sure

The problem here is, if the taxpayer didn't have to pay taxes on his $1000 of extra income, he'd live in somewhere like Somalia. This would turn out real well--instead of receiving $1000 from his investment over 30 years, he'd have no money whatsoever because he would have had to pay it to the platoon that guards his house right after he got it; mercenaries are not cheap.