tag:blogger.com,1999:blog-9069354713843321730.post396322923804235790..comments2023-10-01T09:22:37.695-07:00Comments on Economists for Obama: Greg Mankiw Tackles the Theory of Tax IncidenceDon Pedrohttp://www.blogger.com/profile/15438565798505041042noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-9069354713843321730.post-85924407495215615622008-11-03T20:39:00.000-08:002008-11-03T20:39:00.000-08:00"One problem with Mankiw's analysis here is that M..."One problem with Mankiw's analysis here is that Mankiw assumes that all corporate stocks pay dividends."<BR/><BR/>Mankiw does not assume this. Mankiw expects an annual 10% return and it does not matter whether this return comes in the form of dividend or capital gains because they are taxed the same.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-13468391710258682922008-10-28T18:13:00.000-07:002008-10-28T18:13:00.000-07:00Jonah the Economist said..."One problem with Manki...Jonah the Economist said...<BR/><I>"One problem with Mankiw's analysis here is that Mankiw assumes that all corporate stocks pay dividends."</I><BR/><BR/>Like all orthodox economists, he probably believes in the Efficient Market Hypothesis, and thus invests in index funds or passive ETFs. Therefore, the fact that not all corporations pay dividends is irrelevant. What matters is the dividend yield for the market as a whole.<BR/><BR/>Mankiw's argument may be weak (and selfish—he ignores the financial motivations for the majority of the U.S. adult population), but you don't do yourself a favor by using a weak argument in response.Jameshttps://www.blogger.com/profile/15243567377599238583noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-76498508404348157962008-10-27T16:56:00.000-07:002008-10-27T16:56:00.000-07:00Economists argue about the degree to which human ...Economists argue about the degree to which human economic decisions are rational or emotional. Mankiw has put himself squarely into the "emotional" side on this issue.<BR/><BR/>Consider Adam and Betty. Adam is a median earner. He earns $20 per hour, pays 15% tax, and takes home $17 per hour. Betty earns $100 per hour, pays $50 tax, and takes home $50 per hour.<BR/><BR/>If A and B are both rational, it's clear that Betty has the greater incentive to work. After all, $50 an hour is nearly 3x $17 an hour. <BR/><BR/>But, if they are emotional, they only look at the tax bill. The 50% "feels so bad" to Betty that she ignores the fact that she is still making 3x the median worker's income, and decides that "it just isn't worth my time" to work.<BR/><BR/>In this piece, Mankiw shows very plainly that his incentive to work is based entirely on his tax rate. He is completely indifferent to his after-tax income. Truly, we have met an emotional economist.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-45614446926444069172008-10-27T14:52:00.000-07:002008-10-27T14:52:00.000-07:00Nobody has mentioned that all this assumes that Ma...Nobody has mentioned that all this assumes that Mankiw's only incentive to earn income is to pass it on to his children. Does he not spend some of his income on consumption, charity, or whatever?<BR/><BR/>"Surely, we don't want to incentivize him into early retirement."<BR/><BR/>That was once true, but considering his output lately we'd be doing his reputation a favor if we did.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-72366683306238584582008-10-27T10:16:00.000-07:002008-10-27T10:16:00.000-07:00Darn, I thought I was going to cry after reading G...Darn, I thought I was going to cry after reading Greg's post. You've got to fill sorry for the guy who thinks he's going to get taxed like that. Perhaps, I could persuade my department to drop his principles text and help get him into a little lower bracket. Surely, we don't want to incentivize him into early retirement.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-66691604162016726572008-10-27T08:25:00.000-07:002008-10-27T08:25:00.000-07:00I agree with many of the points made here about Ma...I agree with many of the points made here about Mankiw's post, but I think the corp tax, cap gains, and dividend arguments are rather weak.<BR/><BR/>Mankiw will presumably, like other knowledgeable investors, follow the tenets of modern portfolio theory and put his money into a variety of index funds. Those funds parcel out the dividends and cap gains over time, so investors have to pay taxes on those. <BR/><BR/>And corporate taxes, of course, are deducted from the value of corporations, which reduces the value of funds holding shares in those corporations.<BR/><BR/>But: Most Americans invest via 401Ks, IRAs, and the like, so their taxes are long-deferred. <BR/><BR/>And: most will never have a large enough estate to be subject to the inheritance tax--even for their last dollars.<BR/><BR/>This 55% hit at the end skews the whole analysis.<BR/><BR/>Anybody care to run the numbers for Joe the Plumber? <BR/><BR/>He made $40K in 2006. (Given that, his notion of buying the quarter-million-dollar plumbing company that currently employs him, and that presumably has annual profits of, say, $80-120K, seems to be largely a fantasy.)Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-248239818945792462008-10-27T07:12:00.000-07:002008-10-27T07:12:00.000-07:00davidgood point on the step-up issue. i didn't mea...david<BR/><BR/>good point on the step-up issue. i didn't mean to suggest these were the *only* problems with mankiw's analysis!<BR/><BR/>darko<BR/><BR/>also a good point. the proper baseline isn't zero taxes *and* a functioning economy: with zero taxes, we'd have no public-goods infrastructure, and also a lack of property-rights enforcement.Jonah B. Gelbachhttps://www.blogger.com/profile/16937666641251545988noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-14859579191048141262008-10-27T02:53:00.000-07:002008-10-27T02:53:00.000-07:00I think the bigger problem is that in Mankiw's hyp...I think the bigger problem is that in Mankiw's hypothetical non-tax world, he (and / or his children) would have to pay for things like the roads he drives his two cars on, something his analysis does not factor in.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-38445577721295367362008-10-27T00:10:00.000-07:002008-10-27T00:10:00.000-07:00You are relying on your audiences ignorance of eco...You are relying on your audiences ignorance of economic formulae. <BR/><BR/>Pretending you are correct on the accrual "error", McCain still provides more money for his kids than Obama in the same ratio as with the faulty formula.unavailable manhttps://www.blogger.com/profile/16761873589139888922noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-25071027181782041092008-10-26T22:35:00.000-07:002008-10-26T22:35:00.000-07:00I do not believe you are nearly harsh enough on Ma...I do not believe you are nearly harsh enough on Mankiw's analysis. First, the last time I looked, prosperous people need not pay capital gains taxes on what they pass on to their children. The estate tax essentially forgives all capital gains taxes owed and "steps up" the basis for calculating future capital gains to the asset value at the time of inheritance. <BR/><BR/>Second, the tax rates Mankiw attributes to McCain are pure fiction and would lead to unsustainable fiscal deficits. Mankiw knows this fact, which makes it especially disappointing that he calculates work incentives based on McCain's promised but not sustainable tax rates.David I. Levinehttps://www.blogger.com/profile/09876449845625685140noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-63431137514506244642008-10-26T19:28:00.000-07:002008-10-26T19:28:00.000-07:00Would Maniw recognize the real world if he tripped...Would Maniw recognize the real world if he tripped over it?<BR/><BR/>http://bluememe.blogspot.com/2008/09/flunking-professor.htmlbluememehttps://www.blogger.com/profile/11471763711144717002noreply@blogger.comtag:blogger.com,1999:blog-9069354713843321730.post-79248836391137592572008-10-26T18:19:00.000-07:002008-10-26T18:19:00.000-07:00And tell me when would Mankiw (or the typical inve...And tell me when would Mankiw (or the typical investor) ever actually pay the corporate tax unless he was a venture capitalist? Say I buy stock for $1, it goes up by 10% after one year, I pay my capital gains of 20% on the $0.10, and I'm left with $1.08 at the end of the day. Where does the corporate tax hit me?Anonymousnoreply@blogger.com