Sunday, October 10, 2010

A Cautionary Note on Soaking the Rich

From Greg Mankiw (NYTimes):

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.

Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.
An interesting discussion at HN that questions the validity of a few of his assumptions. There are two basic issues I have with most of the criticism - the first is this assumption that taxed revenues are being redeployed in something useful other than feeding ever larger bureaucracies that provide a net benefit to overall society and the second, if we understand high income earners (not to be confused with the wealthiest) to be the most economically productive in society, should there be any surprise if the productivity of society falls as these individuals choose not to work as much or as hard?

No comments: