Mankiw on taxes

The first edition of Mankiw’s textbook had some rather unkind things to say about supply-side economics.  When he began working for the Bush administration, and had to speak in favor of tax cuts, he was perceived as making supply-side arguments that he didn’t really believe.  But I don’t think that criticism was fair.  He’s certainly had some recent posts that make very strong supply-side arguments, and he’s no longer constrained by political considerations.  One post pointed out that the European countries raise about as much revenue as we do, despite much higher tax rates.  And this NYT column shows how 90% tax rates discouraged him from providing some services.

Most economists were skeptical of the early claims of supply-siders, and some of those claims were almost certainly exaggerated.  But many subsequent studies showed that supply-side effects are much greater than our intuition suggests, and hence economists have become much more accepting of the more moderate versions of supply-side economics.

Mankiw’s written an excellent column, my only quibble is that I’m not sure many people will find this paragraph all that persuasive:

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.

Although these are good points, I think most readers will have trouble visualizing a loss in artistic services.   But high tax rates also reduce physical capital formation, which lowers all our real wages.  They also slow technological progress, the development of new medicines, etc.

His article caused me to think about my own life.  We live in a two family house, which we will probably sell in about 7 years.  To avoid a massive capital gains tax on the first floor we will be forced to leave the apartment idle for at least the last two years we live here (maybe more.)  That allows us to claim it as our own residence (at least I think this is true, consult your tax expert first) as there is a large cap gains exclusion on owner-occupied units.  Then there are my disposable contact lens.  When I first heard this idea 15 years ago, the price tag (more than $600 a year) seemed too high, relative to the added convenience.  Then my wife told me that the government was willing to pay more than 40% of the cost (because income spent on these is free of income and payroll taxes.)  Suddenly the price was only a dollar a day–and that was an amount I was willing to pay.  So taxes cause valuable output to be withheld from the market and it also cause goods to be produced that are not highly valued by consumers.

Actually, these examples are of minor importance to me.   The biggest annoyance of the tax system for me is the time I spend doing my taxes (which are more complicated than average.)  This is one reason why I favor replacing the income tax with a progressive payroll tax.

PS:  I’ll bet many of you never knew the Federal government had a very expensive program subsidizing the purchase of expensive cosmetics (which is how I regard contact lens.)

HT:  Tyler Cowen


Tags:

 
 
 

35 Responses to “Mankiw on taxes”

  1. Gravatar of FXKLM FXKLM
    10. October 2010 at 07:19

    I’m usually not one to complain about typos, but this one really bugged me: “addition” in the first line should be “edition.”

  2. Gravatar of S S
    10. October 2010 at 07:34

    I’m currently a stay at home mother with three kids. I have a PhD in biochemistry, but have found that because of our tax rates, it makes no sense for me to work. With Federal, State, social security, and Medicare our marginal tax rate (which would apply to the FIRST dollar of my salary) is just under 50%. With childcare expenses, I would have to make about $65,000 before I would take home my first dollar. And that’s not considering extra clothing, food, etc expenses for working. I’m in a position where I might be able to find a job that makes that kind of money, but there is no way I’m going to work 45-55 hours a week, put my children in full-time daycare, commute, etc. for about $2/hour. And most people would lose money on the proposition. I realize that not everyone has three kids and needs childcare, but there must be millions of women who face similar circumstances.

  3. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. October 2010 at 07:56

    Most studies on the elasticity of labor supply show that it decreases as wages increase and at the highest levels is about zero or in some cases even negative. Too much attention is paid to personal income taxes.

    The real problem is taxes on corporate income. In fact recent research by Jens Arnold on tax structure and growth suggests that a ranking in terms of effects on growth can be established with consumption taxes being mildly progrowth, labor taxes mildly antigrowth and taxes on capital income being very detrimental to growth. My dissertation research confirms this finding. This implies to me that the elasticity of labor supply probably is indeed not very high for high wage earners.

    P.S. Mankiw is wealthy enough to be seriously concerned about the estate tax? Who knew there was so much money in freshman economics textbooks?

  4. Gravatar of scott sumner scott sumner
    10. October 2010 at 08:33

    FXKLM, Fixed. My senility increases by the day.

    S, Very good point.

    Mark, A few comment:

    1. I’d guess Mankiw’s estate will be well over $10,000,000. His book has made millions, and I’m sure he’s a high saver. Even I may face the estate tax, merely based on savings from a career of mostly 5 figure incomes. The magic of compound interest combined with 50% savings rates.

    2. The labor elasticity that matters for tax policy is the income compensated elasticity. Most studies I’ve seen suggest taxes have a strong disincentive effect. Labor elasticity studies often don’t pick up the long run effects, which are probably the most important (i.e human capital formation, etc.)

    3. A payroll tax has identical incidence (in the long run) to a consumption tax.

    4. Income taxes also tax capital, and hence should be abolished. A progressive payroll tax is far superior.

  5. Gravatar of Tim Worstall Tim Worstall
    10. October 2010 at 08:38

    Mark,

    Even the OECD accepts the idea that different taxes have different effects upon growth. See chart here:

    http://freethinkingeconomist.com/2010/03/25/while-i-do-hate-the-argument-from-authority/

    Scott,

    One of my pet bugbears is the way that in American supply side is all and only about lowering marginal tax rates and in English it still contains the correct meaning: reform of the supply side.

    Privatising the electricity companies was a reform of the supply side (for it most certainly led to lower and more reliable electricity supplies). Banning the union closed shop (in USian, the “right to work” States) is a supply side reform. Sorting out the US’ archaic air traffic controls system would be a supply side reform, breaking up AT&T was.

    It’s, umm, changing the supply side of the economy, you see?

    OK, linguistic rant over.

  6. Gravatar of ssumner ssumner
    10. October 2010 at 08:50

    Tim, I totally agree.

  7. Gravatar of Chaitanya Chaitanya
    10. October 2010 at 09:09

    You know what, if Mankiw insists on including all the subsidiary effects of taxes such as affecting the RoR on investments etc, then why doesn’t he include the benefits of having a government, the ‘return’ on a strong national defense, on having public schools, on addressing externalities, both positive and negative, on having the wonderful interstate system in the United States, tc.

    It is not clear that all this could have been accomplished with much lower taxes – at least, no other country in the industrialized world has been able to deliver such services with lower taxes than the US and this says something.

    I just read the column as a big sulk (and an implicit attempt to blackmail).

  8. Gravatar of W. Peden W. Peden
    10. October 2010 at 09:10

    Tim Worstall,

    Another point about British supply-side economics: one big change in England that has been noticeable even in my short lifetime has been the improved quality of water since the privatisation of water companies. Within my parents’ lifetime, it really was the case that, in many parts of that country, one really wasn’t supposed to drink the tap water. The investment in infrastructure since privatisation has been very impressive.

    To add to the possible supply-side reforms: aren’t there plenty of reforms in the insurance system in the US, e.g. allowing companies to compete across state boundaries, that are well overdue?

  9. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. October 2010 at 09:26

    Scott,
    You wrote:
    “2. The labor elasticity that matters for tax policy is the income compensated elasticity. Most studies I’ve seen suggest taxes have a strong disincentive effect. Labor elasticity studies often don’t pick up the long run effects, which are probably the most important (i.e human capital formation, etc.)”

    I’m aware of the distinction. But I disagree with your perception of the literature. The CBO for example assumes low elasticities of labor supply for high wage earners based on the empirical literature. I know there are studues that find the opposite conclusion but they are squarely in the minority.

    Incidentally, in reference to S’s comment, the literature also finds that the elasticity of labor supply for married women is quite high, probably for the reasons she mentioned.

    You also wrote:
    “3. A payroll tax has identical incidence (in the long run) to a consumption tax.”

    Unfortunately, with respect to the tax structure literature on growth, little effort has been done to separate the effect of payroll taxes from personal income taxes as taxes on labor. Given that payroll taxes are theoretically identical to consumption taxes, separating the two forms of labor taxes is likely to find not only that payroll taxes are progrowth but that personal income taxes are more detrimental to growth than the current literature on tax structure and growth implies. This would of course support your argument.

    This also gives me an idea for extending my research in the future. Thanks.

    And you wrote:
    “4. Income taxes also tax capital, and hence should be abolished. A progressive payroll tax is far superior.”

    A progressive payroll tax has the huge advantage of simplicity. However, it’s worth mentioning that another approach to the progressive consumption tax that has been suggested is a cash flow tax (or expenditure tax). Such a tax, although more complicated, should nevertheless work and be equally progrowth. It was part of the USA Tax proposed back in 1995.

    Tim Worstall,
    The link you posted refers to the very Jens Arnold paper I alluded to previously.

  10. Gravatar of Tomasz Wegrzanowski Tomasz Wegrzanowski
    10. October 2010 at 09:49

    Mankiw’s 8% annual risk-free return of investment is ridiculous. Nothing remotely like actual numbers supports arguments he want to make. And what he assumes about corporate income tax incidence on top of that…

    Why anybody takes him seriously? Even Krugman doesn’t get that stupid and/or dishonest just to make a point.

  11. Gravatar of Greg Ransom Greg Ransom
    10. October 2010 at 10:40

    These are not unrelated, as the fake science models demand we assume:

    ” But high tax rates also reduce physical capital formation, which lowers all our real wages.  They also slow technological progress, the development of new medicines, etc. “

  12. Gravatar of Greg Ransom Greg Ransom
    10. October 2010 at 10:44

    These are all arguments for cutting government spending and for ending special tax privileges — as your reform tacitly acknowledges.

    The are not arguments for tax cuts.

  13. Gravatar of Rebecca Burlingame Rebecca Burlingame
    10. October 2010 at 12:37

    A couple of thoughts on less spending overall. I never was crazy about the idea of VAT and a look at the above mentioned article reminded me why…the psychological factor of less money being spent overall. Say money gets taken out of my check: While I’m not crazy about that, I quickly get over it and go about deciding what to buy. Whereas, perhaps more money gets left in my check and now I can go spend it…oh, that’s right, I’m going to have to give up how-much-again to buy that?

    Regarding Mankiw’s textbook, I would propose that having to buy said textbook leads to less purchases of economics books of all kinds overall than might otherwise have occurred. And, in the long run, someone like myself would ultimately have spent more overall, even though I was aiming for books that (tended) to be a lot less expensive. But then, as a former bookseller, I still spend a lot of time thinking what would get people to buy more books.

  14. Gravatar of scott sumner scott sumner
    10. October 2010 at 13:22

    Chaitanya, You said;

    “It is not clear that all this could have been accomplished with much lower taxes – at least, no other country in the industrialized world has been able to deliver such services with lower taxes than the US and this says something.”

    Actually Singapore has better services than the US, and far lower taxes. Also, you are also confusing discussions of tax revenues and tax rates. Mankiw is complaining about high MTRs.

    W. Peden, Yes, I’m afraid we lag almost every developed country in the world in economic reforms. The only thing that saves us is that we started out with a more efficient economic system than almost anyone else. But we are slipping fast. And the last 10 years have been awful (under both parties)

    Mark, My understanding of the literature is that many studies finding a backward sloping labor supply curve are not looking at income-compensated supply curves. Is that wrong?

    I agree that the progressive consumption taxes are possible by looking at cash flow–but the record keeping just seems like a nightmare to me. The main reason I favor the payroll tax approach is that it is so much less intrusive and annoying. The thing I hate about taxes is not the money involved, I can afford that, it is that so much of my life is wasted doing things to avoid taxes. And not just in April. I’m always having to run down receipts for flexible benefit programs, or deal with health insurance companies because our income tax system forces us to buy health care through third parties, etc. I realize that much of this could be eliminated with a clean flat tax, or even better the USA tax, but then why not go all the way to a payroll tax?

    Tomasz, You said;

    “Mankiw’s 8% annual risk-free return of investment is ridiculous. Nothing remotely like actual numbers supports arguments he want to make. And what he assumes about corporate income tax incidence on top of that…
    Why anybody takes him seriously? Even Krugman doesn’t get that stupid and/or dishonest just to make a point.”

    You certainly have an odd way of looking at the world in your comments. Mankiw does not assume an 8% risk free rate of return, but rather an 8% rate of return investing in equities, which are hardly risk free. That is probably close to the long run average, so I can’t imagine any of his qualitative conclusions being affected significantly by a slightly different estimated ROR.

    But I guess if you think Krugman is less misleading in his use of data, then everything sort of makes sense.

    Greg, Both. They are arguments for less spending, and also for lower MTRs for any given amount of spending. Mankiw was dealing with the second issue here.

    Rebecca, The two taxes may seem different, but that’s an illusion.

  15. Gravatar of Jim Glass Jim Glass
    10. October 2010 at 15:26

    Most economists were skeptical of the early claims of supply-siders, and some of those claims were almost certainly exaggerated. But many subsequent studies showed that supply-side effects are much greater than our intuition suggests, and and hence economists have become much more accepting ….

    One notable example being Nobelist Robert Lucas. Quoting:
    ~~
    “When I left graduate school, in 1963, I believed that the single most desirable change in the U.S. tax structure would be the taxation of capital gains as ordinary income. I now believe that neither capital gains nor any of the income from capital should be taxed at all.

    “Supply side economics [is] a term associated in the United States with extravagant claims about the effects of changes in the tax structure on capital accumulation.

    “The analysis I have reviewed supports these claims: Under what I view as conservative assumptions, I estimated that eliminating capital income taxation would increase the capital stock by about 35 percent.

    “The supply side economists have delivered the largest genuinely free lunch that I have seen in 25 years in this business, and I believe that we would have a better society if we followed their advice.”

    In Supply Side Economics: An Analytical Review, Oxford Economic Papers, 42:293.
    ~~~~
    “the potential for welfare gains from better long-run, supply side policies exceeds by far the potential from further improvements in short-run demand management….” [emphasis in original]

    “The potential gains from improved stabilization policies are on the order of hundredths of a percent of consumption, perhaps two orders of magnitude smaller than the potential benefits of available ‘supply-side’ fiscal reforms.”

    2003 AEA Presidential Address [pdf]
    ~~~~

    “Why anybody takes [Mankiw] seriously? Even Krugman doesn’t get that stupid and/or dishonest just to make a point”

    One more of the odd things about Krugman is that when wrote his big NY Times Magazine story that surveyed the history and effect of supply-side policies — damning them as being created by Irving Kristol and Co. who “set out to deceive the American public” and being pushed today by the likes of Grover Norquist who want to destroy the government, while “professionals regard the supply-siders with disdain” — somehow he never mentioned Lucas. Or any of the other professionals who, like Lucas, don’t regard supply-siders with disdain. Go figure.

    Maybe he didn’t pay his dues and missed that AEA presidential address that year.

  16. Gravatar of Benjamin Cole Benjamin Cole
    10. October 2010 at 16:01

    Amen on tax simplification. First, taxes are annoying and eat up time. Secondly, any system that is complicated is inherently unfair.
    I use soft contacts, and no, I did not know I had a tax break there–an example of how complication results in a “unfair” result–one taxpayer takes advantage and another does not.
    Every year the WSJ submits a typical family to four accounting firms and every year they get four different answers.
    KISS. KISS. KISS.
    I read Sumner’s explanation of how payroll taxes are the same as consumption taxes, but I never really got it.
    Anyway, I think the public would understand gasoline, pollution, PIGOU and consumption taxes (a national sales tax) more easily.
    Imagine getting a paycheck with no taxes take out.
    The only tax collection takes place at retail and for polluters.
    If you want to tax-exempt medical and food, so be it.

  17. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. October 2010 at 17:44

    Scott,
    You wrote:
    “Mark, My understanding of the literature is that many studies finding a backward sloping labor supply curve are not looking at income-compensated supply curves. Is that wrong?”

    No that’s correct. It’s just that even when estimating income compensated labor supply curves most studies show that the elasticity of labor supply is close to zero for high wage groups. Thus the truth appears to be in the middle (as it often is). The elasticity of labor supply for high wage groups appears to be neither negative nor strongly positive but rather barely above zero.

    This is why most supply side advocates are probably missing the mark by stressing the negative effects of the personal income tax. I believe the real story is with capital income.

  18. Gravatar of Lorenzo from Oz Lorenzo from Oz
    10. October 2010 at 23:57

    Mark: is your take on the literature on labour elasticities that–at the point of welfare-tax-work interactions–EMTRs are a significant issue?

    Just to remind folk that no country is perfect, the Australian income tax system is a nightmare. Last time I looked, we had the highest, or near highest, rate of using accountants to submit tax returns in the developed world precisely because of the complex madness that is the Australian income tax system.

  19. Gravatar of Lorenzo from Oz Lorenzo from Oz
    10. October 2010 at 23:59

    As for our GST, our small business finds that often officers of the Australian Tax Office simply cannot tell us our tax liability. But, hey, tax complexity creates lots of human capital in regulatory knowledge for bureaucrats and ways for politicians to reward particular groups.

  20. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. October 2010 at 01:21

    Lorenzo from Oz,
    It’s well known that when one considers all the subsidies such as EITC, Medicaid/SCHIP, Food Stamps, TANF and Section 8, that for some working families with children the implicit marginal tax rate as the subsidies are withdrawn can be quite high. But it’s rarely pointed out in the literature that in these income ranges the elasticity of labor supply is also relatively high.

  21. Gravatar of nyd nyd
    11. October 2010 at 01:33

    “Actually Singapore has better services than the US, and far lower taxes.”

    As does Switzerland.

  22. Gravatar of scott sumner scott sumner
    11. October 2010 at 05:28

    Jim Glass, Thanks, those are good quotes. My only quibble is that he underestimates the cost of cyclical unemployment.

    Benjamin, Yes, the equality of payroll and consumption taxes is very counterintuitive.

    Mark, I agree about capital income, but I also think that if you include human capital (as one should) capital income explains much of the income earned at the top decile.

    Lorenzo, Is the GST different from the VAT? If so, why did Australia go that way?

    nyd, I’d say they have much better services at similar levels of tax revenue. Isn’t that right?

  23. Gravatar of nyd nyd
    11. October 2010 at 06:07

    Scott – “I’d say they have much better services at similar levels of tax revenue. Isn’t that right?”

    No, it’s not. See here: http://www.globalpropertyguide.com/Europe/Switzerland/Taxes-and-Costs

  24. Gravatar of Joe C Joe C
    11. October 2010 at 06:36

    I am a happy person who only gets really angry during two events: When my favorite sports team loses and PREPARING MY TAXES! I hate it with a passion.

  25. Gravatar of Morgan Warstler Morgan Warstler
    11. October 2010 at 07:26

    It depresses me to no end that well meaning people, like you, waste so much time jabbering about tax policy totally outside the boundaries of real political discussion.

    Yes, yes, consumption taxes are better. And no you haven’t proven that even over the “long term” (that’s quite a hedge in and of itself) payroll taxes are consumption taxes.

    Realistic policy is about what is politically doable. Which means we are talking about “hacking” what we currently have to the greatest amount of positive disruption.

    Otherwise the discussion is academic and essentially meaningless.

    So once again, I’ll point everyone’s attention back to Progressive Corporate Taxes:

    1. Most small business income passes through to individuals returns, a PCT of say no taxes on first $10M, would give small businesses HUGE incentive to pay very little in salaries and focus like a laser on re-investment – which means an age of modernization, automation, productivity gains.

    2. It favors Main Street Wealth over Wall Street Wealth, by simply keeping traders from calling themselves small businesses, suddenly the capital gains taxes on the average broker are HIGHER than what a guy with 7 Dry Cleaners. How awesome is that?

    3. It is “Progressive” which gives it 10 full points of political favorability – which means it can PASS.

    Something that can pass and have a deep lasting impact on consumption is the entire goal.

    Why waste cycles being eggheaded? Because Mankiw wrote a eggheaded article? He tossed it in the NYT to make Obama thinking look bad, that’s Politically Important. But here now, at you blog, let’s take up PCT and birth a baby that can chew through liberal dogma with razor sharp teeth.

  26. Gravatar of rpl rpl
    11. October 2010 at 08:48

    Realistic policy is about what is politically doable. Which means we are talking about “hacking” what we currently have to the greatest amount of positive disruption.

    Otherwise the discussion is academic and essentially meaningless.

    And if everybody’s busy “hacking” policy, then who’s going to figure out how the world actually works? You make some strong claims about what your favorite policy will do. Were those findings made by disinterested investigators working as free from political bias as humanly possible? Or were they developed by political “hackers” working an angle? If the latter, then they are so corrupted by politics as to be worthless. If the former, then it would seem there is some use for “meaningless” and “academic” inquiry after all.

  27. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    11. October 2010 at 11:46

    If Mankiw wasn’t famous enough, Rush Limbaugh just read the column in its entirety on his radio program.

  28. Gravatar of happyjuggler0 happyjuggler0
    11. October 2010 at 11:55

    Patrick,

    But will it lead to increased sales of his favorite textbook?

  29. Gravatar of Benjamin Cole Benjamin Cole
    11. October 2010 at 13:31

    I keep hoping Limbaugh will, in fact, work less.

  30. Gravatar of Morgan Warstler Morgan Warstler
    11. October 2010 at 23:26

    Sorry rpl, that’s the beauty of political reality… even though it is OBVIOUS what the angle is… it still works! Likely voters still press the “feed me” button.

    This of course is WHY “academic” theory is truly crap, if it worked we simply wouldn’t look down on it.

    Now that you humbly accept this truth when it has been stated right back at you… please grant the simple genius of PCT.

    Look, I mean no disrespect, its just that as a lifetime hardcore political junkie – I started as a pure theory anarcho-capitalist, and after ’94 I woke up – you can’t even be a minor libertarian without thinking in terms of “hacking.”

    Here’s the general rule to follow: when people say, “the outcome was unpredictable!” that’s your honey, your desire you plan for. Now you simply have to look at the realm of the politically possible, and look for the greatest unintended/unexpected/unstated effect that you wish for… 70% of the time, what causes it, that’s your policy…. dress it up, put lipstick on it and make sure it is FREE.

    Short version: Hacking is ALWAYS based on what works, that’s the definition of hacking. You are an idealist who hasn’t suffered enough.

  31. Gravatar of scott sumner scott sumner
    12. October 2010 at 04:46

    nyd, I just checked Wikipedia, Switzerland actually has a higher level of taxes than the US as a share of GDP. It’s just that their system is more efficient–lower MTRs.

    Joe, I agree.

    Morgan, You said;

    “Yes, yes, consumption taxes are better. And no you haven’t proven that even over the “long term” (that’s quite a hedge in and of itself) payroll taxes are consumption taxes.”

    I don’t have to prove anything, my view is the standard view in economics. It’s those who disagree with me that have to prove me wrong. Do it and you’ll win a Nobel Prize.

    Patrick, Good to hear Rush is doing something useful.

  32. Gravatar of Morgan Warstler Morgan Warstler
    12. October 2010 at 06:01

    Ok, let’s say we have a high saving society in a zero inflation world that saves 20% of their weekly incomes by putting it in their mattress.

    Assuming the same tax rate, payroll taxes capture 100% of earnings and consumption taxes capture 80% of earnings.

    Are you simply arguing that eventually the savings will be spent?

    Even then, the consumption tax promotes savings, which causes Americans to seek less inflation and becomes more aggressive about government not deficit spending. How does a payroll tax increase savings?

    What’s more:

    Payroll taxes effect the cost of all businesses equally …. Consumption taxes effect only what companies consumers choose to favor.

    So in the world of start-ups / newcos: you seek to pay employees less, nextgen your operations, and charge less for the product.

    A consumption tax promotes this: you pay less up front to get started, and the consumer pays less tax.

    A payroll tax increases costs for start up so you either have less run way or less money to spend on operations.

    In reality… Right now in technology we have a perfect storm begging for a consumption tax and NO payroll tax.

    CAPEX costs are going away (cloud), coding is super fast (APIs / modules) and if you suddenly saved on payroll, you can put ALL OF IT towards reducing your prices even further.

    So we’d get a lot more creative destruction if we killed off the payroll tax and moved to a pure consumption tax.

  33. Gravatar of Doc Merlin Doc Merlin
    14. October 2010 at 00:06

    @Morgan:

    “So we’d get a lot more creative destruction if we killed off the payroll tax and moved to a pure consumption tax.”

    I agree here!

  34. Gravatar of ssumner ssumner
    15. October 2010 at 14:53

    Morgan and Doc Merlin, Yes, with a consumption tax you put more dollars saide now, but you don’t get anymore dollars in the future, as the income is taxed at a later date. So they are equivalent.

  35. Gravatar of Sumner über Mankiw über Steuern « Aus dem Hollerbusch Sumner über Mankiw über Steuern « Aus dem Hollerbusch
    27. February 2012 at 15:02

    […] Scott Sumner bringt zusätzliche Beispiele für die von Mankiw diskutierte Wirkung hoher Grenzsteuersätze, die einem durchaus bekannt vorkommen: His article caused me to think about my own life.  We live in a two family house, which we will probably sell in about 7 years.  To avoid a massive capital gains tax on the first floor we will be forced to leave the apartment idle for at least the last two years we live here (maybe more.)  That allows us to claim it as our own residence (at least I think this is true, consult your tax expert first) as there is a large cap gains exclusion on owner-occupied units.  Then there are my disposable contact lens.  When I first heard this idea 15 years ago, the price tag (more than $600 a year) seemed too high, relative to the added convenience.  Then my wife told me that the government was willing to pay more than 40% of the cost (because income spent on these is free of income and payroll taxes.)  Suddenly the price was only a dollar a day-and that was an amount I was willing to pay.  So taxes cause valuable output to be withheld from the market and it also cause goods to be produced that are not highly valued by consumers. […]

Leave a Reply