Whiny Rich People

Economics Professor and blogger Brad DeLong points us to this op-ed by Greg Mankiw, an economist who worked for George W. Bush and John McCain. Mankiw is ready to go Galt if tax on his income above $250,000 is raised by 3%.

First, I have to acknowledge that the Democrats are right about one thing: I can afford to pay more in taxes. My income is not in the same league as superstar actors and hedge fund managers, but I have been very lucky nonetheless. Unlike many other Americans, I don’t have trouble making ends meet.

…

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.

I think the obvious solution is his children should kill Mankiw right now, since the estate tax is currently 0%. Of course, Mankiw must be really rich is he’s subject to 55% estate tax. So Makiw’s logic is instead of giving his children $1000, he’ll give them nothing. That works for me. Bootstraps and all that.

Mankiw is rich indeed if he doesn’t see the need to work for $1000. Perhaps he should stop taking the job of someone who could use this money?

Don’t you just love this? Politicians, Republicans in particular, have gone on and on about our need to sacrifice. What they mean, of course, is that middle class people need to work until they’re 70 and take less Social Security. They didn’t mean rich people should sacrifice. In fact, they need our Social Security to create all those jobs they’re going to create any day now.

Brad DeLong takes apart Greg Makiw’s argument:

First, start with the fact that tax on Greg’s current writing earnings because he wants to leave more to his children in thirty years will be higher than today’s current Bush-era tax rates. But they will not be higher because of anything Barack Obama has done or failed to do. They will be higher for three reasons. First, George W. Bush and his advisors–of whom Greg Mankiw was one–failed to find any spending offsets in order to pay for the temporary Bush reductions in tax rates. Second, George W. Bush and his advisors–of whom Greg Mankiw was one–enacted a very large long-term spending increase without figuring out any way to pay for it: Medicare Part D. Third, George W. Bush and his advisors–of whom Greg Mankiw was one–enacted a second very large spending increase when they responded to Al Qaeda by greatly increasing the size of a conventional military which is of not much use in our current struggle, and also did so without figuring out any way to pay for it.

As Milton Friedman liked to say, and as he did say when he–I am told–yelled at George W. Bush during his 90th birthday celebration at the White House–to spend is to tax. Will the spending, and you will the taxes. If somebody claims to have cut your taxes without cutting spending, do not believe them: all they have done is to shift taxes forward into the future, and made taxes on current consumption lower while making taxes on long-term transfers of wealth into the future higher.

The sooner taxes are raised in order to pay for Medicare Part D, the expanded U.S. military, other pieces of Medicare and Medicaid spending growth, and to offset the revenue lost over the past decade of the Bush temporary tax cuts, the lower the taxes on Greg’s saving for his children’s inheritance will be. That Barack Obama is taking some steps to restore fiscal sanity should diminish his view of the risk-adjusted taxes his long-run savings will pay, and make him more willing to write for the New York Times–not less.

But there is more. The two biggest long-run policies that Barack Obama has set in motion over the past two years have been (a) the entrenchment of future reductions in Medicare spending growth designed by the Independent Payment Authorization Board so that they can only be overturned by affirmative congressional supermajority votes to prevent them, and (b) the enactment of a growing and eventually very large tax on high-cost health-insurance plans. Now these policy changes may not survive–the Republicans are pledged, to a sophont, to repeal both of them. But if they do they greatly reduce the amount by which income and other taxes must rise over the next generation. And so they make the expected taxes on Greg’s saving-for-his-children’s-inheritance significantly lower.

That’s the truth. Greg Mankiw cares nothing about his children’s taxes. He cares only about himself. Go Galt, already.