StickWithANose

Thorstein Veblen offers us a reasoned argument for taxing the shit out of the small number of individuals making more than $1 million a year.

Greg Mankiw links a former student courageously trying to protect the rights of Millionares not to pay more taxes here.

Here’s the thing — there are no reputable studies on the elasticity of the effect of tax changes on total taxes collected, and there’s no logical reason that that number should necessarily, a priori, be less than one. [...]

Peyton Manning makes about $30 million a year — let’s explore his potential behavioral responses to changes in taxes. Let’s raise Peyton’s taxes by 10%. Under the logic of Alan Liard, Greg Mankiw’s student, and under the logic that all economists know to be the truth, people respond to incentives. Peyton Manning is a person, so he responds to this tax hike by working 6% less, and decides now he’s going to sit for the Colts playoff games since he makes less money per game, and he enjoys watching Tom Brady play in the playoffs more than being there himself. Doesn’t really sound likely, does it?

Of course, Peyton Manning is going to play 16 NFL games and the playoffs even if you raise his taxes considerably. The same is true of a wide variety of other professions — corporate execs usually have two choices, they can choose to work or not work — there are no part-time CFO jobs, and it’s probably tough to be a “part-time” hedge-fund manager as well… So, let’s say Greg the textbook publisher or Chuck the hedge-fund manager decides, due to higher taxes, that they are just going to retire. In that case, the government loses 100% of the taxes Chuck or Greg would have paid! The multiplier is -10!!!

Except, according to logic which is totally obvious to a pre-schooler, if Greg the textbook author doesn’t sell textbooks, then Thorstein the textbook publisher will. If Peyton the quarterback doesn’t play in the playoffs or appear in Gatorade commercials, then Tom the quarterback will. If the CEO of Anthem, who routinely makes $40 million, quits due to high taxes, Anthem will pay the next CEO extravagantly. If Chuck the hedgefund manager doesn’t manage Peyton’s money, then Emilio the hedgefund manager will manage Tom’s money… [...]

The study I’d really like to see is if, since the early 1980s, as wages on Wall Street have gotten out of control, what has happened to the average age of retirement at firms such as Goldman Sachs. “Standard theory” of course does not even predict whether the income or substitution effect dominates, but I suspect that there are quite a few I-bankers on Wall Street who do not exactly love their jobs or working 100 hours a week, and will just retire once they’ve put away $10 million in the bank. Tax them more and that just delays retirement. And to the extent higher taxes preclude the possibility of putting away $10 million for your average I-banker and talent shifts out of finance (or NFL quarterbacking), I fail to see how this is such a bad thing for society…

Put another way, suppose the CEO of Anthem made $4 million rather than $40 million due to high tax rates on multi-million dollar incomes (which we do not currently have). While in the micro context, this would greatly reduce the government’s revenue, in this case, Anthem would have higher profits, or could afford to pay it’s other workers more, could cut prices to gain more market share, or might even be able to deny fewer claims. In other words, it wouldn’t make the whole pie smaller, it would just make it more equally distributed. And, to the extent that the Anthem CEO no longer flies around in a private Jet, owns 6 houses, and drinks $1000 bottles of wine, redistributive taxes would quite likely make the pie bigger…