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Why Higher Taxes Won't Backfire

Everyone knows that we have a huge tax problem. It's figuring out what to do about it that has triggered such a big debate that Congress has once again come to a standstill rather than dealing with the problem.

The Obama administration has proposed allowing tax rates on taxpayers earning more than $250,000 to rise to their pre-2001 levels. Predictably, the proposal has pitted middle-class taxpayers who'd be unaffected by the move against higher-earning taxpayers who'd see many of the tax cuts they've had over the past 10 years go away.

A threat to all
But earlier this month, Harvard economics professor Gregory Mankiw wrote an article for The New York Times in which he put forward a scary theory: that raising taxes on high-income taxpayers would have the unintended consequence of making them work less, thereby hurting those who rely on the services that they provide.

Using himself as anecdotal evidence for his proposition, Professor Mankiw's argument goes like this: Once you're rich enough to earn $250,000 or more, you don't really need to take on extra work. When tax rates are low, though, you get to take home more of the pay you earn if you work more, so you'll tend to put in extra hours. Conversely, when tax rates rise, you don't get to keep as much of your earnings after taxes. So since you're not being rewarded as much to work more, you'll decide to take a break and stop doing that extra work -- thereby leaving those who depend on the essential services you provide out of luck.

On its face, that sounds like simple supply and demand economics. But in the real world, it doesn't always work that way.

Getting by on six figures
For one thing, Professor Mankiw says that when it comes to spending the money he earns, he is already "almost completely sated." If he gets some spare money, he'll set it aside for his kids, but he has no financial challenges at all. And apparently, he'd feel no inclination to work more to make up for any lost income going to higher taxes.

If you think that's how all high-income taxpayers feel, though, think again. Staying with anecdotes involving academics, turn to University of Chicago law professor Todd Henderson, who last month lamented how his $250,000-plus family income was barely enough to make ends meet. With massive student loan debt, various taxes, and household expenses like private school, child care, and lawn care, Henderson sounds like his family is anything but sated.

If you have all the money you need, then sure, maybe you'd turn down extra work. But for the many people who live at or above their means and face challenges to make ends meet regardless of their income, higher taxes aren't going to have them heading for the golf course. Rather, it's going to make them try to figure out how to replace the take-home pay that's now going to Uncle Sam -- and that could well make them work harder.

Making hay while the sun shines
Perhaps more relevant to the non-academic world is that most people don't have the luxury of deciding exactly how much they work. Those who receive salaries get a fixed paycheck irrespective of how many hours they put in. Trying to cut back, however, would potentially put their jobs at risk.

Meanwhile, many independent contractors have gone through several business cycles in their careers, during which boom times are followed by long lulls where work's hard to find. Even those who earn $250,000 and up know that if you try to cut back when times are good, you run the risk of not having enough during slower times. That's not a risk that many are comfortable with -- even if it means paying higher taxes.

If taxes rise on the rich, then we may not be reading more of Professor Mankiw's opinions in national newspapers. But to think that higher taxes will lead to losses of essential services is a red herring that draws attention away from the more important issue: figuring out the best way to return the government to some semblance of fiscal responsibility.

Related articles:

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Fool contributor Dan Caplinger is paying higher taxes this year but works harder anyway. The Fool has a disclosure policy.


Read/Post Comments (82) | Recommend This Article (49)

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  • Report this Comment On October 20, 2010, at 1:30 PM, TMFHousel wrote:

    Best comment I've heard on this issue from Fool member KBOKSOFT:

    "You don't want to work harder because you have to pay a higher tax rate? Cool. Give me your customers' phone numbers. I'll pick up your slack."

  • Report this Comment On October 20, 2010, at 1:50 PM, Melaschasm wrote:

    You forgot to mention that the professor calculated a net tax rate of something like 90%.

    At that rate, I can imagine many people saying that working more is not worth it. Or more specifically small business owners choosing not to invest in equipment that will make them more productifve and profitable, since such a large amount of those profits will be taken by the government.

    Finally, the economic theory about taxes being to high does not show a sudden drop to zero work, but rather a slowly growing incentive to work and invest less.

  • Report this Comment On October 20, 2010, at 2:08 PM, donmartin65 wrote:

    That data regarding marginal tax cuts and gross revenues is compelling. Unfortunately, it is ignored by the liberal media and collectivist economists.

    The 2003 Tax Cuts resulted in a massive surge in Federal Income Tax revenues from 1040 filers. From 2003 to 2007, gross tax receipts from Form 1040 filers grew by over 49%. There is no other four-year period in recent history that came close to matching this surger in federal income tax revenue.

    Furthermore, despite the lies repeated by the media and leftists, the burden was not borne by middle class income tax payers. The largest surges in revenue came from the top 0.1%, top 1%, top 5%, and top 10% of filers, respectively.

    The raw data, as generated and served by the Internal Revenue Service, can be found here:

    http://www.irs.gov/pub/irs-soi/07in05tr.xls

  • Report this Comment On October 20, 2010, at 2:15 PM, Zade wrote:

    The problem with saying higher tax rates is not something to fear is that it doesn't take into account all the spending. The citizens of this country can be taxed 100% of their earnings but it doesn't pay off the deficits acquired by all the spending the government has done. I don't particularly want to keep feeding the beast UNTIL the beast has shown some self-control and I would want to see the self-control FIRST before I gave more money to the beast to spend. I also have a real problem when the money I send is used to bail out Fannie Mae and Freddie Mac and I am expected to keep paying higher taxes to keep these entities going while our Congress and President DON'T RETURN their lobbying money and campaign donations from them. After all, their failure to regulate them when given the chance helped contribute to this mess. I also have a problem when my tax dollars are used to bribe Ben Nelson and Mary Landrieu to vote for Obamacare. If I did that, I'd be in jail right now. We desperately need to make sure our politicians are held accountable under the same laws that we all are governed by.

  • Report this Comment On October 20, 2010, at 2:22 PM, klebad wrote:

    One of the unintended consequences is that more time and energy will be put into finding ways to avoid taxes. Better to put that time and energy into creating wealth which would result in increased tax revenue.

  • Report this Comment On October 20, 2010, at 2:26 PM, Teo123 wrote:

    What happened the last time that the top marginal tax rate was at 39.6%? I would love data on this. My sense is that those who were taxed at this rate -- beginning, I believe, in 1994 and continuing until after the 2001 and 2002 tax cuts were implemented -- still worked and made plenty of money.

  • Report this Comment On October 20, 2010, at 2:39 PM, donmartin65 wrote:

    Treo123,

    The Clinton tax hikes did increase revenue, especially immediately after their passage. However, the revenue growth that followed was tepid in comparison to the revenue growth experienced from the 2003 to 2007 period.

    Furthermore, at those higher tax rates, wealthier Form 1040 filers actually bore less of the overall burden of the total Federal government take. From 1994 through 2003, the burden borne by the top 1% of Form 1040 filers (data for the top 0.1% of filers did not become available until 2001) ranged from 29 to 37 percent. In 2003, the top 1% of Form 1040 filers only paid 34% of the total personal Federal Income tax collected.

    By 2007, that number was over 40%.

  • Report this Comment On October 20, 2010, at 2:45 PM, BMFPitt wrote:

    I think that the peak of the Laffer Curve in the US (which only a [lowercase] fool would believe is primarily driven by people just deciding to work less, as opposed to a lack of disposable income) is somewhere between 40 and 55%.

    That doesn't mean we should want to be anywhere near the peak. We should want to be as far to the left is as practical to fill our needs (not our misguided wants.) Taxes should absolutely be raised to get the deficit to 0 if we fail to cut spending though, because we should be punished for such extravegance, not our children.

  • Report this Comment On October 20, 2010, at 3:41 PM, TMFGalagan wrote:

    @donmartin65 -

    Funny, I look at that data and I see a huge increase in tax revenue from 1996 to 2000, with drops in 2002 and 2003 despite the 2001 tax cuts. Sure, revenue rose from 2003 to 2006 as the economy came strongly out of recession.

    High-income taxpayers definitely know to hold off on incurring taxes when they see an imminent rate drop coming. After the initial shock of a tax hike, though, 1996 to 2000 argues that they grin and bear it.

    best,

    dan (TMF Galagan)

  • Report this Comment On October 20, 2010, at 4:19 PM, sawchain wrote:

    Who should spend your money? You or them?

    I firmly believe that individuals making decisions in their own self interest will end up make better, more efficient decisions than any tax-and-spend scheme ever could. Government introduces overhead...and not just the cost of monuments and buildings, either. It gives money to folks who make decisions not based on economic factors, but political ones. They buy votes. If you want to buy health care, should you go talk to a doctor or a politician?

  • Report this Comment On October 20, 2010, at 4:21 PM, FleaBagger wrote:

    This article is disturbing. Because people with huge student loan debts are struggling to make ends meet, it's a good idea to tax them more? We really will make more tax revenue for our profligate government, so doctors and other specialists with hundreds of thousands of dollars in student loan burdens are great people to tax within a hair of insolvency? You're a sociopath, Dan Caplinger.

  • Report this Comment On October 20, 2010, at 4:45 PM, TMFHousel wrote:

    "Because people with huge student loan debts are struggling to make ends meet, it's a good idea to tax them more?"

    You have to do some incredible mental gymnastics to conclude that was Dan's point.

  • Report this Comment On October 20, 2010, at 4:47 PM, dbassett12 wrote:

    The discussion has overlooked the small business owner whose business income flows onto his personal tax return. That would be S-corp and LLC owners, as well as sole proprieters and partnerships. These folk show a high income on their 1040, but don't have that amount flowing through their personal bank accounts. The unintended consequence here is that these businesses may not hire additional workers to pick up additional business.

  • Report this Comment On October 20, 2010, at 4:51 PM, BMFPitt wrote:

    @sawchain

    I completely agree that the people are better off with the money. But that's not the question here. The money has already been spent and then some. It's only a question of how much of the bill we're going to hand to our children. The deficit must be eliminated FIRST. Then we can start cutting taxes.

  • Report this Comment On October 20, 2010, at 4:52 PM, topsecret09 wrote:

    You cannot tax people that do not have a job.... TS

  • Report this Comment On October 20, 2010, at 5:00 PM, mpendragon wrote:

    The tax hike most discussed these days is repealing a portion of the Bush tax cut for households making over about $250,000/yr.

    These were tax cuts that were enacted during two wars and were funded by borrowing money. It was a stimulus bill targeted primarily at the wealthiest Americans at a time when their taxes were near their lowest rates in the modern era. It has contributed far more to the deficit that the Obama stimulus package which was primarily tax cuts, extending safety net programs like unemployment, and keeping teachers, fire fighters and police working.

    There has been a lot of talk about stimulus programs that don't work and the one I'd like to stop is the super expensive one from the last recession that didn't work (we were housing bubbled out of that one).

  • Report this Comment On October 20, 2010, at 5:01 PM, TMFGalagan wrote:

    @FleaBagger -

    Professor Henderson's lament has been sufficiently criticized elsewhere, so I chose not to list the full range of the expenses he considered essential. Suffice to say that I'm confident his family could cut back on some of those expenses without any threat of insolvency.

    best,

    dan (TMF Galagan)

  • Report this Comment On October 20, 2010, at 5:17 PM, TMFGalagan wrote:

    @dbassett12 -

    Again, a number of people have raised the small business issue, but as a small-business owner myself, I don't see the distinction. Whether you leave profits inside the business or take them as salary, you'll do whatever you can to maximize profits. If hiring help will earn you more money, the fact that some of it will get taxed shouldn't stop you from doing it.

    best,

    dan (TMF Galagan)

  • Report this Comment On October 20, 2010, at 5:19 PM, DBrown7 wrote:

    Maybe a good place to start with raising taxes would be on those with taxable income over $250,000, but only raising the rate on dividends and long term capital gains, Buffett has made reference to his effective tax rate being lower than his secretary's and he thought that was unfair. Most of Buffett's taxable income is attributable to dividends (he does own stock outside of Berkshire).

    Tax preference for dividends is relatively new. The country has prospered with dividends taxed at a much higher rate in the past. Long term capital gains are also being taxed at or near historic low rates.

  • Report this Comment On October 20, 2010, at 5:36 PM, rd80 wrote:

    "Sure, revenue rose from 2003 to 2006 as the economy came strongly out of recession."

    Don't you think the Bush tax cuts just might have contributed to the economy coming out of recession?

  • Report this Comment On October 20, 2010, at 6:07 PM, WyattJunker wrote:

    We need to tax the poor and middle class more and 'the rich' (whatever that means) much less.

    Its not fair demonizing a class, any class of citizens, and I'm not very rich either.

    Property rights must be respected, even more than helping buy a politician a vote or giving someone a handout and bailing out a state or keeping a teacher from being fired. Property rights should come before all the other 'things'. Otherwise we have no society at all.

    If we can raise taxes on the poor and middle class, we can also shrink the size of government. People would vote more responsibly for government if they had to pay for it.

    As it stands, more and more voters are learning they can vote themselves a raise out of the common treasury that they didn't pay into.

    And the politicians will only help them to oblige.

    This is perverse and moral rot. Its also what kills nations.

  • Report this Comment On October 20, 2010, at 6:25 PM, ferrerim wrote:

    Opening caveat: I am not an economist...(:-}

    This sort of topic tends to send me into a dumb stupor, as I hardly know where to begin to make any sense of how changes in the marginal federal tax rate will affect anyone other than myself.

    The assumption of a uniform human response, even among the small single digit percentage of the U.S. population who have incomes above $250k, seems foolish and overly simplistic, as we are still talking about 1+ million people (?).

    Even just a few factors with significant differentials across this group can result in a wide variety of behaviors. Consider:

    1. Source of the income and the corresponding differing tax rates. (wages, dividends, capital gains)

    2. An individual's access to and ability to pay for tax 'advice' that effectively negates a marginal tax rate increase (or sometimes results in a net reduction).

    3. Current debt obligations on an individual that can vary enormously.

    4. Recurring expenses that vary widely with size of family, ages of the family members, lifestyle, etc.

    5. Is the income from small business activity or wages?

    6. Short-term and/or chronic health issues.

    ...and on and on. The above don't even begin to take into account, individual economic behavior which is decidedly less than logical, but rather emotional, expedient, morally motivated or simply bowing to perceived social pressures to 'keep up' or 'get ahead'. Add to that, the seemingly widespread inability to discern the difference between 'need' and 'want' (this one extends to our elected representatives as well).

    So, please excuse my skepticism, if I find it difficult to accept the notion that B will follow A with any significant degree of regularity or predictability, when it comes to almost any aspect of human behavior, much less the assertion that lower marginal tax rates will always lead to larger federal revenues.

    M. Ferreri

    Almost, but not quite, hopelessly confused.

  • Report this Comment On October 20, 2010, at 6:49 PM, hbofbyu wrote:

    The higher taxes go the more people will find and invent un-taxed income. Barter, Fair exchange, unreported cash. Technology is enabling more peer to peer commerce. Anyone who thinks that tax policy will not effect behavior does not have any real world, small business experience. I know scores of people who would not work over-time because of the rate at which that money was taxed. It wasn't worth it.

    "Why should we break our backs

    stupidly paying tax?

    Better get some

    untaxed income"

    - Fagin

  • Report this Comment On October 20, 2010, at 7:07 PM, maximusdesimus wrote:

    Can somebody smarter than me tell my why people are debating the revenue side of the ledger instead of the expense side? I work in an industry that depends on government grants to continue operations and believe me, there is PLENTY of money being wasted.

  • Report this Comment On October 20, 2010, at 7:21 PM, ChrisFs wrote:

    Maximus,

    Because we have had a tax cut that was supposed to be temporary that conservatives are crying about if it's not permanent.

    Have you looked at expenditures? You could cut practically all of domestic govt spending outside of Soc Sec. and still not cover the budget, so you need to raise taxes.

    AND if you work in an industry that depends on govt grants and you say money is being wasted, then it follows that YOU are wasting it.

    So STOP WASTING MY TAX DOLLARS!

  • Report this Comment On October 20, 2010, at 7:44 PM, Nosheet wrote:

    Give me a break. New marginal tax rate of 39.5% on someone with taxable $500,000 would pay $11,250 more in tax on that >$250,000 than at 35% and keep $238,000 of it. My heart breaks....

  • Report this Comment On October 20, 2010, at 7:46 PM, redfirecracker wrote:

    <Everyone knows that we have a huge tax problem..>

    No, we have a huge spending problem. Please take me off your email list if this is the kind of thoughtful analysis I can look forward to.

  • Report this Comment On October 20, 2010, at 7:58 PM, dbassett12 wrote:

    @dan (TMF Galagan)

    I would have to disagree (to some degree). My accountant is telling me that next year $190,000 in salary will equal the take home pay of $400,000. I haven't personally done the math, but I'll accept it as truth. Being a small business owner in Calif, one cannot discount the potential expense of employees, i.e. workers comp ins, health ins. and the employer based taxes. Not to mention the potentinal of employee based lawsuits. All risks to be sure, on top of the uncertainty of the business itself.

    So in my case, one would want a very compelling and low risk reason venture beyond the $190,000 mark.

    And that's my point. We are making it harder for small business to risk, and hire more people. I think the government is compounding their revenue problem but making people like me think twice (times 1000) before hiring. If unemployment is a priority issue, this is a bad move.

  • Report this Comment On October 20, 2010, at 8:31 PM, maximusdesimus wrote:

    @ChrisF

    by your logic:

    - since some NFL players hit defenseless receivers and cause concussions, all NFL players must hit defenseless receivers and cause concussions

    - since some banks make bad mortgages to people that can't afford them, all banks must make bad mortgages to people that can't afford them

    - since rectangles are squares, all rectangles are squares

    I respect your answer to my question, but the personal attack was nonsense. Yes, I realize that most of the federal budget consists of wars and entitlement liabilities. Are these off limits?

  • Report this Comment On October 20, 2010, at 8:31 PM, XMFConnor wrote:

    Raising the marginal tax rate does not make people work harder. Coming up with one example in the world where that may be the case does not mean it overrides basic economics for the majority of the population. Look at comparable countries with higher marginal tax rates around the world if you don't believe me (or professor Mankiw). I'm going to go with one of the world's leading economists on this one.

  • Report this Comment On October 20, 2010, at 8:54 PM, talotu wrote:

    @dbasset

    I am a small business owner who has made 190K in a year and has made 400K, both before the 2001 tax cuts. If your accountant says the take home pay would be the same, I'd suggest you hire a new accountant.

  • Report this Comment On October 20, 2010, at 9:12 PM, xetn wrote:

    "Everyone knows that we have a huge tax problem." This is the wrong approach. What we should focus on is the out-of-control spending.

    But this also ignores the concept of tax: a theft of ones production and a forced transfer of wealth from producers to non-producers.

    At least 50% of citizens are receiving a check from the government and most of them (if not all) pay NO tax. This is a growing problem, along with off-budget items like the Freddie and Fannie bailouts, and the growth of SS and Medicare entitlements.

    What this country needs more than anything is to drastically cut government spending, drastically cut taxes and remove most government regulation that drives up the cost of everything while resulting in many jobs going off-shore.

  • Report this Comment On October 20, 2010, at 9:19 PM, xetn wrote:

    And one more thing: it is mainly the rich that provide the capital for economic growth and job formation. The incentive for doing this is a healthy return on investment. Not many will wish to share a possible profit with Big Bro when there is so much risk (unknown new regulation and new taxes). I submit that much of the big money staying on the sidelines (including huge bank reserves) is due to these potential threats.

  • Report this Comment On October 20, 2010, at 10:00 PM, TMFHousel wrote:

    I think there's something to be said for the fact that the tech industry was born during an era when top marginal tax rates were 70-90%. The idea that raising top rates from 35% to 39% will shut down innovation and investment doesn't hold a lot of historical weight. There's a hell of a lot more to the equation than marginal taxes. I would buy the argument if history consistently showed a plunge in private investment during high tax periods and surge during low tax periods. Frankly, it doesn't: http://tiny.cc/0acosjrrd9

  • Report this Comment On October 20, 2010, at 11:29 PM, Neuralblade wrote:

    Enough of the whole 'the rich pay more than their fair share' argument please. The amount of tax you pay is based not upon which percentile you fall within but how much taxable income you have. Since the top 50% earn 97% of the taxable income they hard better damn well expect to pay a lion's share of the taxes. Even in a flat tax system the top 50% would still pay a majority of the taxes. I hate it when lay people use numbers in their arguments without understanding the underlying concepts behind those numbers.

    I'd also like know how the notion came about that the poor don't pay any taxes. They most certainly do pay taxes. In fact, the poor are stuck under some of the heaviest tax burdens, including having a large portion of their incomes facing double or triple taxation. Someone earning under 20k a year (which is considerably mor than minimum wage) pays taxes on their pay, but they also pay taxes on their FICA deduction and their Medicare deduction. In essence pay taxes on money that should come pretax. On top of those taxes, the poor also pay a hefty amount of sales tax. And even those pesky renters that many complain about pay property tax. Maybe not directly to the city, county, or state, but most definitely through their rent. Or does everyone think the property owners don't pass that expense on?

    Finally, when it comes to government expenses, what cuts are we looking for? I would have thought that everyone by now would have looking at federal expenses and noticed that the majority goes to defense, social security, medicare and interest on the debt. Until those 500 pound gorillas are dealt with there can be no really reduction in federal spending, at least nothing that will make any type of dent.

  • Report this Comment On October 20, 2010, at 11:57 PM, JSergeant wrote:

    @dbassett12

    You said:

    <i>@dan (TMF Galagan)

    I would have to disagree (to some degree). My accountant is telling me that next year $190,000 in salary will equal the take home pay of $400,000. I haven't personally done the math, but I'll accept it as truth. Being a small business owner in Calif, one cannot discount the potential expense of employees, i.e. workers comp ins, health ins. and the employer based taxes. Not to mention the potentinal of employee based lawsuits. All risks to be sure, on top of the uncertainty of the business itself.</i>

    I don't understand what you are saying here. Maybe you can restate it more clearly. I also run a small (Sub S) business, and I would be one of the people affected by the tax rates rising to their pre 2001 levels. But if I had the opportunity to increase my gross income by $500,000, the fact that my tax rate on that extra 500k would go from 35% to 39.6% would not factor into my decision making - so I'd have to pay an extra $23,000 - not a deal breaker. I really don't understand the lack of logic in these endless debates about the reverting to pre 2001 tax levels. If it's something that helps solve our fiscal problems I'm all for it. But to suggest that it might affect my decisions to try to earn more money is absurd.

    What astonishes me most is that people don't realize that the wealthy and powerful are manipulating them so much against their own best interests. You've got Rupert Murdoch, who owns Fox, the Wall Street Journal in the US and the Times and the Sun in the UK, as well as many other media properties worldwide. You've got the Koch brothers, billionaires who have funded the Tea Party. These people are cynically using you.

    http://www.newyorker.com/reporting/2010/08/30/100830fa_fact_...

  • Report this Comment On October 21, 2010, at 1:22 AM, dbman5 wrote:

    donmartin65 - I like the way you ignored the first 3 years when revenue from taxes dropped almost 25%. Sure the economy wasn't very good for awhile but it had pretty much recovered in less than 3 years. AND, even if you ignore those 3 years, the actual rate of increase after that wasn't much much different than it was during those "horrible" years under the "oppresive" Clinton tax rates. The dollar amount was higher but the rate of increase was almost the same. Every time there has been a tax cut since the first one under Reagan there has been a drop in revenue followed by a rate of increase that wasn't much different than under the previous rates - in other words, tax cuts reduce tax revenues.

  • Report this Comment On October 21, 2010, at 1:23 AM, SundayRider wrote:

    It's obvious that taxation sure does bring out a lot of opinions! Here's mine, which is really quite simple:

    Even God didn't ask for more than 10% (who do the people in Washington think they are?). Make the income tax a flat 10% tax rate. Get rid of all the corporate and personal welfare written into the tax law. In actual fact, for most people this will wind up to be about the same tax as they are now paying, except for those who depend on big tax loopholes. Everyone would understand their fair share, and that everyone was paying, and the "class warfare" could just end. If they wanted to make it more "progressive" to offset the effects of local sales taxes, they could allow everyone to deduct $10,000 for each person in the household (for example).

    If that isn't enough income, they can make it up by removing all "corporate welfare" where they try to juggle the prices of almost every commodity and try to pervert the economy. (Look how good they've been at encouraging the house-building industry with tax deductions--it's only almost dead!)

  • Report this Comment On October 21, 2010, at 1:37 AM, dbman5 wrote:

    dbassett12 - to be correct you should have said, "SOME OF These folks show a high income on their 1040..." I know quite a few small business owners and *none* of them are making anywhere close to $250,000. One of them was even taking money *out* of his personal savings to pay his employee's salaries a year ago. Oh, and I almost forgot to mention the one that made so much money he went bankrupt a couple months ago - before paying me the $2,000 he owed me. Based on my experience, I'd have to say that MOST small business owners (let's say those with 50 employees or less so we don't count the "Bectel" type "small businesses") don't make over 250,000. They may *gross* more than that but don't *net* enough to take that much for themselves.

  • Report this Comment On October 21, 2010, at 1:45 AM, QuandoInQuando wrote:

    Here's how it really works.

    As the tax on the folks with the power (corporations and their leadership) goes higher, they simply pass their added expenses on to us in the form of higher prices and lower wages. This is why the disparity between the highest paid workers and the lowest paid workers gets worse with each passing decade.

    Eventually, the upper 2% will assume100% of the tax burden and we can all work for minimum wage!

    In some respects that wouldn't be all bad. 98% of us will no longer file tax returns thus eliminating an army of IRS workers and tax accountants.

  • Report this Comment On October 21, 2010, at 5:54 AM, JacksonInVA wrote:

    I must agree that we have a huge tax problem. However, it is among the many huge problems that show us that the way we are being governed is the real problem. The failure by our politicians to appropriately govern this country should be a crime. Every citizen understands that the failure of governance is the problem. Every citizen also believes they can do nothing to change the problem and that the politicians have become too corrupt and partisan to address the governance problem.

  • Report this Comment On October 21, 2010, at 7:08 AM, brizzlekizzle wrote:

    I read that we are in such a situation that even with tax increases and spending cuts, we are going to be buried underneath the obligations that we already have, so talking about tax rates and such, working with what we have, will not solve the problem. And then there is the simple fact that I disagree with this war for starters, so really despite the current need for more money, I really don't want to support the government. I have seen first hand how they created a monster in Bishkek, the man made off with Billions of dollars we gave in exchange for use of the land. I think that sadly, the less money our governments have, the better for so many people across the world. And there is the probable situation that the dollar is going to be devalued, so working harder to truly increase personal wealth will only be that much harder. At what point are you willing to say the tax rate is too high? If you factor in inflation, Personal Income Tax, Sales Tax, Property Tax, Corporate Tax, Inflation, Excise Tax, Duty Tax, Death Tax, Consumption tax, Capital gains tax, Tariffs, Tolls, etc, we have a pretty high tax rate. Dare I guess over 50%? Is 70% the cutoff, perhaps 80%? It would be a crime to make a million dollars in 2011 and only be able to pay personal bills and government taxes. A situation like that would cause people to move forever to another country.

  • Report this Comment On October 21, 2010, at 8:06 AM, D2009 wrote:

    "As the tax on the folks with the power (corporations and their leadership) goes higher, they simply pass their added expenses on to us in the form of higher prices and lower wages. This is why the disparity between the highest paid workers and the lowest paid workers gets worse with each passing decade."

    And yet that disparity has steadily gotten worse amidst decades of LOWER taxes on the folks with the power. How do you explain that?

    That said, I tend to agree with you: a tax increase on the rich and powerful simply causes them to pass the burden on in the form of layoffs, lower wages, and higher prices.

    However, I don't know how any sane individual can believe that, and also believe that a tax reduction on the rich and powerful will magically cause them to hire more, increase wages, and lower prices.

    The bottom line is that they're going to do what makes them money.

    And without a healthy economy that has a solid demand for their companies' products and services, what makes them money is not hiring, paying more, or charging less.

  • Report this Comment On October 21, 2010, at 9:59 AM, skypilot2005 wrote:

    I would like one example of a country with a higher federal tax rate than ours that has a higher standard of living.

    You cannot include Canada or countries in Europe and Asia where we pay for their defense. That is, if it wasn’t for our defense expenditures, they would be speaking Russian, German or Chinese.

    When comparing countries and tax rates you have to take this into consideration. We pay a great deal of money providing a deterrent against someone attacking them.

    I think means testing for social security payments is appropriate and would be a start.

    An honest effort has to be made to reduce nonessential expenditures, as well. To date, neither party has done so.

    For me, raising taxes is a non-starter until we have agreements with other countries so that they meaningfully start contributing to their defense; means testing for Social Security and nonessential expenditures are reduced significantly.

  • Report this Comment On October 21, 2010, at 10:35 AM, dbassett12 wrote:

    @dbman5

    And that is the point I want to make. To tax those small business owners more, because they gross over $250k causes more negative effects and a reduction is overall tax revenue. On paper they look "wealthy". But their net is small and getting smaller. Why would they "risk" to grow their business with the likelyhood of success in this economy being so slim. The bottom line...no new hires. Therefore, taxing them more, leads to sustained high unemployment.

  • Report this Comment On October 21, 2010, at 10:48 AM, dbassett12 wrote:

    @jseargent

    To be more clear...say you currently were in a lower tax and had the opportunity to increase your by $500k. To do this you needed to hire people and invest in equipment and then HOPE for the best. Certainly the risk is as real as the investment. My point is that raising the tax rate is disincentive to hiring the people and taking the risk.

  • Report this Comment On October 21, 2010, at 12:38 PM, BMFPitt wrote:

    @skypilot2005

    What does our current rate of defense spending have anything to do with Cold War needs?

    I don't think anyone would have to worry about speaking Russian or German (or Farsi, for that matter) if we made a properly allocated 25-50% cut.

    Take that and similar cuts to Social Security, Medicare, and Medicaid, as well as an elimination of all subsidies on everything, and we're have such a large surplus that we could pretty easily pay down the debt while still cuttign taxes. But the spending cuts must happen FIRST.

  • Report this Comment On October 21, 2010, at 1:35 PM, scanlin wrote:

    Agree with those who stated that we don't have a tax problem, we have an out of control spending problem. But when more than half the people are taking from the state they will not vote in politicians with economically sound balanced budget and deficit reduction policies because it will reduce their own benefits. We are in a slow death spiral and are destined to either inflate away the debt or end up a basket economy like Greece. There is a limit to free money, people. Day of reckoning will eventually come.

    MikeS

    http://www.borntosell.com

  • Report this Comment On October 21, 2010, at 1:46 PM, TMFHousel wrote:

    "Agree with those who stated that we don't have a tax problem, we have an out of control spending problem."

    I don't doubt that spending is out of control and needs to be curtailed. But if you look at the facts, the overwhelming cause (~70%) of today's budget deficit compared with 2006-2007 is a matter of lost tax revenue, not increases in spending. What portion is attributable to spending increases is overwhelmingly non-discretionary items like unemployment benefits and entitlements. If anyone were truly serious about balancing the budget today, they'd offer two proposals: tell the old and unemployed to pound sand, and drastically raise taxes. This debate becomes pretty unrealistic unless those two points are factored in.

  • Report this Comment On October 21, 2010, at 1:51 PM, JSergeant wrote:

    @dbassett12:

    I still think that the small increase in the marginal tax rate is a minor factor in my decision to expand my business. Much more important is the state of the economy and the cost of labor and benefits.

  • Report this Comment On October 21, 2010, at 2:08 PM, stan8331 wrote:

    @BMFPitt

    If you really believe there's anything above a zero chance of 25 - 50 % cuts in Defense, much less in Social Security, Medicare and Medicaid, anytime in the distantly foreseeable future, I need to talk to you about a bridge in Brooklyn.

  • Report this Comment On October 21, 2010, at 2:20 PM, hbofbyu wrote:

    Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda; reducing its effective overseas tax rate to 2.4 percent.

    THIS is how it's done. You would be wise to do the same. US tax rate too high? Go elsewhere.

  • Report this Comment On October 21, 2010, at 2:23 PM, BMFPitt wrote:

    I said we shoud do it, not that there was a snowball's chance in Hell of it actually happening.

  • Report this Comment On October 21, 2010, at 3:27 PM, sprsprt wrote:

    Professor Mankiw is on to something, at least for some high income people. Several of the physicians in my group have stated their intention to cut hours if their tax rate goes up. Why work 60 hours a week when you can work 40, have some days off, more time with your family, and take home nearly as much money?

    A policy of 'The more you work, the more the government takes' does not incentivize productivity. Quite the reverse.

  • Report this Comment On October 21, 2010, at 3:33 PM, TMFHousel wrote:

    "Why work 60 hours a week when you can work 40, have some days off, more time with your family, and take home nearly as much money?"

    I'd like to see the math on that.

  • Report this Comment On October 21, 2010, at 3:50 PM, dbassett12 wrote:

    @jsergeant:

    I agree in concept. Just that there will be a middle ground at which no benefit is realized.

  • Report this Comment On October 21, 2010, at 4:25 PM, TMFGalagan wrote:

    @sprsprt -

    Your point just illustrates my confusion with Professor Mankiw's thinking. I'm genuinely curious: if your physician peers are willing to take a 1/3 pay cut to cut their hours from 60 to 40, why not do it now? Why wait until higher taxes would make it even more of a lifestyle adjustment? Unless your group has an unusual compensation arrangement, I'd think these physicians are in for a shock if they think they'll take home "nearly as much money" after cutting their hours so drastically.

    best,

    dan (TMF Galagan)

  • Report this Comment On October 21, 2010, at 4:37 PM, stan8331 wrote:

    I see an overwhelming volume of nonsense coming from the left and right on this issue - people shouting back and forth about how they think we should address the problem, with no consideration whatsoever for what could actually happen in the real world. Even a cursory glance at the numbers relating to the coming baby boomer retirement wave should tell any objective observer that increasing taxes on the rich, in isolation, cannot possibly provide a workable remedy. And on the other side, all the strident cries for drastic spending cuts ignore the fact that the vast majority of our spending goes to programs that will be extremely difficult to cut deeply, both in terms of raw politics and humane treatment of our elderly and poor.

    The only way we can hope to find a viable path to addressing the problem before it eventually blows up in our collective faces will necessarily involve both political parties working together. As things stand right now that seems like an absurd fantasy, but hope springs eternal.

  • Report this Comment On October 21, 2010, at 5:49 PM, hbofbyu wrote:

    What if we phrase it like this:

    Dan, why won't you go and get a job bagging groceries during the evenings after you are done working your day job? It would mean more money. How can you turn down that extra cash?

    Answer: Because your time is worth more than the money you would make bagging groceries. The Doctors feel the same way when working extra results in a 10% (or whatever) paycut.

    http://en.wikipedia.org/wiki/Utility

    "The nonlinearity of the utility function for money has profound implications in decision making processes: in situations where outcomes of choices influence utility through gains or losses of money, which are the norm in most business settings, the optimal choice for a given decision depends on the possible outcomes of all other decisions in the same time-period".

  • Report this Comment On October 21, 2010, at 6:05 PM, TMFHousel wrote:

    @hbofbyu

    "Dan, why won't you go and get a job bagging groceries during the evenings after you are done working your day job? It would mean more money. How can you turn down that extra cash?Answer: Because your time is worth more than the money you would make bagging groceries. The Doctors feel the same way when working extra results in a 10% (or whatever) paycut."

    I'd like to take a crack at this one. If Dan wanted more money, he'd go find extra work *that paid him the most.* Odds are that wouldn't be bagging groceries (Dan's a smart guy). He'd find work in his profession that offered him the highest wage, regardless of the marginal tax rate. That's how he maximizes his income, and it's why people didn't stop working when marginal taxes were 70-90% from the '50s through the '80s.

  • Report this Comment On October 21, 2010, at 6:34 PM, FinnMcCoolIRA wrote:

    "Everyone knows that we have a huge tax problem."

    ????

    NO WE DON"T .... WE HAVE A HUGE SPENDING PROBLEM!

    No one, and especially a politician,bureaucrat or teacher should have the power to quantify 'how much is enough'.

    This is not (YET) the USSR!

  • Report this Comment On October 21, 2010, at 6:42 PM, QuandoInQuando wrote:

    Dear D2009,

    "However, I don't know how any sane individual can believe that, and also believe that a tax reduction on the rich and powerful will magically cause them to hire more, increase wages, and lower prices."

    It's not magic at all. Those are the folks that create the jobs that we worker bees fill. I am retired now but I spent 40 years as a design engineer and I like to think that I made a positive contribution to life here in the United States. However I never created a paying job for anybody.

    Jobs are created by entrepreneurs, some of whom are not at all rich when they start out, but many are already rich and become even more rich. This is not to say that all rich folks are entrepreneurs but the possibility to become fabulously rich must remain. I believe that today we americans are killing the entrepreneurial spirit.

    I believe that the ideals expressed in "Atlas Shrugged" by Ayn Rand are superior to those expressed in Karl Marx's "The Communist Manifesto".

  • Report this Comment On October 21, 2010, at 7:00 PM, hbofbyu wrote:

    I understand your point.

    But keep in mind we don't live in the 50s 60s or 70s. Back then a greater percentage of your income went to basics of food, clothing, shelter and fuel.

  • Report this Comment On October 21, 2010, at 8:26 PM, TMFGalagan wrote:

    @hbofbyu -

    Adding to TMFHousel's response, I'd say this: I understand the nonlinear utility theory. But my point to sprsprt was that nonlinear utility says that they should be *more* inclined to cut back hours *now* when their take-home pay is higher. If tax increases cut their take-home pay, the remaining dollars are worth more, so they should be *more* inclined to work extra to get back to some of what they've lost.

    It's one thing if you really want the extra leisure time. But if you give up $100 in pre-tax earnings just to avoid paying $39 of it to the government instead of the $35 you pay now, who are you hurting more: the government that doesn't get the $35 they used to, or yourself in giving up the $65 net take-home you would've gotten?

    best,

    dan (TMF Galagan)

  • Report this Comment On October 21, 2010, at 10:49 PM, WarrenBuffoon71 wrote:

    The author is dead wrong. Raising taxes in the middle of a reccession, regardless what the fed calls it, is stupid and will backfire. Top earners who are small businesses and corporations have already had their taxes raised through Obamacare, and the consequences are the 10% unemployment and lackluster economy we are stuck with until Obamacare is repealed.

  • Report this Comment On October 22, 2010, at 1:15 AM, XMFConnor wrote:

    @TMFGalagan-

    Who are you hurting more? You are hurting the government more because they are losing out on that tax revenue that they would have had at a 35% marginal rate (laffer curve). The person is simply making the rational choice given the new set of circumstances-- and their opportunity cost for that amount of time is now higher than his after-tax profit. Therefore, he chooses leisure.

    This is basic economics...

    I am surprised about the lack of evidence in the article. One would expect more when refuting a world-class economist.

  • Report this Comment On October 22, 2010, at 5:36 AM, Chromantix wrote:

    And FinnMcCoolIRA wins.

  • Report this Comment On October 22, 2010, at 7:50 AM, TMFGalagan wrote:

    @XMFConnor -

    Basic economics is that a $4 rise in taxes shouldn't lead you to give up a net $61 increase in take-home pay. The data that DonMartin65 provided earlier makes pretty clear that when the 1990s tax hikes took effect, tax revenue still rose, showing that we're still firmly on the left side of the Laffer Curve even if we return to those levels.

    I'm certainly not claiming to have Professor Mankiw's level of expertise, but I was surprised by the lack of evidence in his article. Apparently, world-class economists can rely on personal anecdotes when writing for the general public, citing nothing more than a 10-year-old study that didn't actually support his claims.

    best,

    dan (TMF Galagan)

  • Report this Comment On October 22, 2010, at 9:09 AM, JGJR wrote:

    After reading that take on higher taxes without any comment on less government spending I know I won't be renewing my subscription.

  • Report this Comment On October 22, 2010, at 11:59 AM, Fullstep wrote:

    Mankiw makes the case for government spending being more potent than tax cuts at stimulating the economy. This used to be called the "balanced budget multiplier".

    A tax cut may be saved. For Mankiw, his marginal savings rate is 100%. That is extreme. If all "sated" rich people act like Mankiw then tax cuts to this group would not stimulate the economy at all!

    Mankiw has a very weird notion of marginal tax. Lets imagine that in the first year he keeps 27% after tax, and then spends it. That would be a 73% marginal tax rate. He gets here by adding state and other taxes to the federal 39% rate. I am a little skeptical of his arithmetic.

    Is a 73% marginal rate too high? He openly admits he does not need the money. Perhaps he should donate the $1000 to a charity. That way he can be a big-shot philanthropist at 27 cents on the dollar.

    Nor will I dig down into his illogic that turns a 73% marginal rate into a 90% overall rate by counting taxes on the investment income that would have been generated by his initial $1000. Clearly he is confusing taxes on savings and intergenerational transfer with the income tax. Changing his estimated returns and holding period will change the results. Holding for more than 30 years will appear to raise the marginal tax rate he is facing. Getting higher investment returns will also appear to raise his "apparent marginal tax rate".

    This is pretty sloppy analysis. I can see how this "advice" laid the groundwork for the permanent Bush tax cuts.

  • Report this Comment On October 22, 2010, at 12:15 PM, rfaramir wrote:

    More taxes "could well make them work harder" say what??

    May as well say, "The floggings will continue until morale improves!"

    When income takes a dive, the spending needs to be adjusted downwards. This is common sense in every other sphere of life. You can't just take more from the taxpayers because your revenues went down. Your revenues from the taxpayers are lower because the taxpayers are in a world of hurt. Do NOT hurt them more as your answer.

    Taxes are evil, as they are force used to extract the product of someone else's labor. Argue whether it is a *necessary* evil elsewhere. For now, let's just agree to reduce the evil as much as we can.

  • Report this Comment On October 22, 2010, at 2:03 PM, Harley117 wrote:

    You start the article by saying we have a huge tax problem. What we really have is a huge spending problem. Since Democrats took control of control in 2007 the federal deficit has increased from $160 billion to $1.3 trillion. The total accumulated debt which was at $8.4 trillion for 230 years of accumulation has now increase by 63% to over $13 trillion. The size of government has increased by 40% based on spending as a percent to GDP. What we need is to stop the profigate spending.

    Every fiscal year end the various federal agencies spend ever last dime on the table and than try to make the case for a larger budget. They spend more time trying to manage the rules than they do managing out come and there is no reconciliation of cost to out come. There never is any purging for functions no longer needed or for duplication of functions between agencies or for departments that simply do not achieve their core mission.

    Think about the Department of Engery established in the late 1970's to reduce our depenancy on foreign oil. Now $28 billion per year and over 100K employees including contract employees what is the out come?

  • Report this Comment On October 22, 2010, at 2:06 PM, TMFHousel wrote:

    "You start the article by saying we have a huge tax problem. What we really have is a huge spending problem. Since Democrats took control of control in 2007 the federal deficit has increased from $160 billion to $1.3 trillion."

    But how much of that deficit increase came from lost tax revenue? More than half.

  • Report this Comment On October 22, 2010, at 7:37 PM, JoKingMe wrote:

    Both democrats and republicans are wrong on the tax issue. This means that both are correct, but for wrong reasons. Democrats are correct that the super-rich don’t pay enough in taxes (and WB agrees). Republicans are correct in that income tax rates should not be raised.

    The issue isn’t the tax rate on income that the super rich like Buffet pay, it is that they control their income and thus their taxes. In 2008 WB made $46,000,000 or one tenth of 1 percent of his net worth.

    Simple solution is to make mega rich (I.e. net worth > $100,000,000) to have line 37 of their 1040 be the larger of their actual income or 4% of their net worth. Buffett would be required to pay taxes on $1,400,000,000 rather than $46,000,000. Yes, he can sell some BRK to pay taxes on long term capital gain rates rather than ordinary income, but he’d still pay around $275,000,000 in taxes or 6 tenths of 1 percent of his net worth.

    Is this such a big change? Not really, we already have property taxes on Real Estate, why not on stock assets?

    Such a change wouldn’t change taxes on the merely very rich or high income earners or small business owners.

    Solves the inheritance tax issue also. Net worth – {prior 10 years income} = Amount of inheritance subject to taxation.

    If Buffett says he doesn’t pay enough in tax, then I agree. Issue is to how to make his taxes ‘fair’ without punishing others. This solution accomplishes that goal.

    OK, let’s cut spending also to really solve our problems.

  • Report this Comment On October 23, 2010, at 1:50 AM, PolyT100 wrote:

    Most will not cut back their activities due to higher taxes but some will. In economics the behavior at the margin is what is most important. Every person values their time differently and everyperson assesses the risk of activity. That is especially important where investment is involved. So the level of tax revenues will be less than the increase in tax rates would suggest. Plus some will move assets etc to other countries to avoid taxes.

    As you get older working is harder so an excuse to reassess can lead a decision to work less. It may not make sense economically but economics is not the only factor that influences behavior.

  • Report this Comment On October 23, 2010, at 1:53 AM, XMFConnor wrote:

    @TMFGalagan

    "Basic economics is that a $4 rise in taxes shouldn't lead you to give up a net $61 increase in take-home pay."

    That statement simply is not true. Once again, it comes down to opportunity costs. Raising taxes DOES NOT make people work harder. You can debate the taxes from a political standpoint, you can also reference a user comment (DonMartin's) and take your own interpretation of the data, but it is tough to argue basic economics with a world-class economist.

    In addition, your statement about the Laffer Curve is also off-base. You cannot compare time periods and expect the Laffer Curve to remain fixed. Are you really saying that this economic time is exactly the same as the 1990's? It's obviously not-- in fact, I think you would find that a majority of economists believe the curve has shifted at least some degree to the left (therefore reducing the most efficient tax rate). Regardless, you CANNOT conclude that we are still on the left side of the curve.

    Best,

    XMFConnor

  • Report this Comment On October 23, 2010, at 4:55 PM, Y2KMavin wrote:

    Perhaps we are looking at the wrong argument. Above $250,000 working more is not the questions, as making that kind of money requries full employment. The issue is where do these people invest for the future. Do they invest where the dollars produce growth or do they invest to minimize their taxes. If capital gains taxes are 36% and adding the state taxes pushes the tax to 45%, one has to ask do you invest where the return is 5% or do you invest in muni bonds where the taxes are zero. The net is that as taxes rise the investor changes investing approaches to avoid higher taxes, the net result is that there is less investment in jobs.

  • Report this Comment On October 24, 2010, at 6:12 PM, NoOracleHere wrote:

    At the risk of saying something controversial, I'm not nearly so concerned about whether people making >250K work more or less. They are not working productively all that much anyway. (ok, that's the controversial part). I'm much more concerned about the people that are unemployed, and hence not working at all. This depends essentially on the health of the economy. To allow a doctor to spend an extra 16 hours on the golf course to allow an unemployed factory worker to get back to a 40 hour/week job, that's a pretty good tradeoff for an economy to make. Now what's arguable is what improves the health of the economy. I believe that has to do with flows. At this point, I'm less concerned about the flows upward in the economy which fuel capital gains and stock returns, and I'm more concerned about flows downward in the economy which employ the workers who gladly return to productive gainful employment when either the government spends, or the power elite invest and their factories produce. But that's controversial again because gov't spending when it's a deficit requires us to pay the bankers (who don't need any more money), or the chinese (who won't buy any more of our treasuries anyway) or to print money which is inflationary. Wealth holders certainly don't want any of that, although the road construction workers don't mind if it means holding onto their jobs. Anyway, economists need to stop thinking parochially and think more about the heath of the economy. It depends much less about who gets to hold onto what they have, and more about who gets to work productively, and how the money, goods, and services flow, that's FLOW through the economy.

  • Report this Comment On October 25, 2010, at 4:09 PM, fug57fug wrote:

    Don't neglect an analysis of two-income families in this equation. The tax situation had a big impact in our family decision to have my wife stay home from work permenantly after adding a child to the mix. Her entire income would have been taxed at such an extreme rate (when considered as incremental added to mine for joint filing) that it was very much not worth having her work.

    If you have quuickbooks or simuilar tax software, take a hack at running you tax numbers with both and then one income. You will see what I mean. This exercise is pretty discouraging at today's rates. One year from now, higher state and federal taxes will make this decision even easier.

  • Report this Comment On October 25, 2010, at 4:18 PM, fug57fug wrote:

    This is the wrong question for many of us:

    "Basic economics is that a $4 rise in taxes shouldn't lead you to give up a net $61 increase in take-home pay.

    The question should be: "Is it worth staying later at the office/making additional sales calls/whatever if I am going to be taxed $61 of the next $110.61 I make.

    Based on 39.5% top tax rate (bush tax cuts expire for $250k+) + 6.2% social security rate + 4.45 medicare rate (Obamacare 3% addition for $250k+) + 5% state income tax rate.

    Total marginal tax rate of %55.15%

  • Report this Comment On October 27, 2010, at 2:26 AM, grendeth wrote:

    Guys would you want to pay more taxes?. Nobody does, so while I don't make $250K, I bloody likely won't want to pau more taxes if I do.

  • Report this Comment On October 27, 2010, at 4:18 PM, CVMp wrote:

    It doesn't take a Harvard professor to realize that government is creating all the wrong incentives with every economic move they make. Higher taxes discourage work, risk taking, and investment. Longer unemployment benefits discourage getting a job and encourage working "off the books". Depreciating the currency is a disincentive to save. There are many other examples.

    This klusterphuk is bipartisan in it's evolution.

    Does ANYONE in political office understand anything about economics ?

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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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