Greg Mankiw does the math on going Galt in today’s NYT, and decides that higher taxes will lead him to deny us some of his labor.
Maybe you are looking forward to a particular actor’s next movie or a particular novelist’s next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.
In order to make a compelling case for the dire impact of paying a couple more percent in taxes, he has to haul out this chestnut:
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.
If a company is actually paying 35% in tax, then they’re run by idiots and Mankiw shouldn’t expect to get a 5.2% yield — he should expect to lose his investment.
The rest of the article includes a bunch of other questionable assumptions. For example, I doubt that someone contemplating whether or not they want to earn $1000 for cranking out an essay will think about the 30 year yield of investing that money, as well as the impact of estate tax. But Mankiw can only make it look like he’s taken a serious hit from taxation if he makes those kinds of assumptions.
If higher taxes will keep Mankiw from cranking out crap like this, let’s raise his taxes to the Eisenhower rate of 91%.