Ezra Klein: Tax These People

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August 05, 2007

Tax These People

These Silicon Valley millionaires seem to me to be a perfect example of why we need more progressive taxation. It's not that they're unsympathetic characters -- they work very hard, and they seem like perfectly nice people. The trouble is that they're a case study in how the marginal utility of money diminishes, especially when there's nothing left to pursue but positional goods:

“Everyone around here looks at the people above them,” said Gary Kremen, the 43-year-old founder of Match.com, a popular online dating service. “It’s just like Wall Street, where there are all these financial guys worth $7 million wondering what’s so special about them when there are all these guys worth in the hundreds of millions of dollars."

...Silicon Valley offers an unusual twist on keeping up with the Joneses. The venture capitalist two doors down might own a Cessna Citation X private jet. The father of your 8-year-old’s best friend, who has not worked for two years, drives a bright yellow Ferrari.

Apart from one woman who fulfilled a childhood dream by having a swimming pool in her backyard, there don't seem to be many people who are using their wealth to satisfy deeply felt personal desires.

Laffer curve fans won't be happy with this article either. The people that the article describes are working 60-hour weeks and coming in on weekends despite their high tax rates. And the occasionally-mentioned people who had opted out of the Silicon Valley rat race didn't do it because they realized that high tax rates meant that their work was insufficiently remunerative. They left because they'd made enough money to ensure a high standard of living for the rest of their lives.

If the central idea behind the Laffer curve is that high tax rates decrease revenue by discouraging work, it's possible that there are cases in the article that bend the curve backwards. If part of the reason why the Gage family left for a wonderful house in Oregon with their $3 million was that they'd made enough money to live as they wanted to, we have a case that bends the curve backwards. If people are planning to make a fixed amount of money after which they can move away and live comfortably for the rest of their lives, higher tax revenues actually encourage work. They make you work a longer time to accumulate the millions you need to live comfortably. And as you work longer at higher tax rates, you pour more money into the federal coffers.

One of the things that makes the people in the article rather sympathetic is their lack of arrogance about their wealth:

“I always ask myself, ‘Do I deserve it?’ ” she said. “It never feels like you do, because that’s a lot of money.”

Ms. Baranski is hardly the only working-class millionaire asking herself this question. Ms. Holland said she regularly works with multimillionaires who wonder why they are so well compensated when others, like teachers, who contribute so much to the world, are not.

I don't want to make Celeste Baranski worse off. In fact, part of the argument for progressive taxation is that taxing away more of her money will do very little to harm her. I just know that by taxing her at higher rates and using the proceeds to help teachers -- not to mention people with infectious diseases in developing countries -- we can make the world a much better place.

August 5, 2007 | Permalink

Comments

despite their high tax rates

I'm an enthusiastic supporter of progressive taxation, but if you think these people are paying high taxes you are very much mistaken. Even if their wealth is rapidly increasing due to salary income - which I am given to understand is not usually the case in Silicon Valley - the top rate in the US must be considered very low both by world and by historical US standards.

My understanding is that most software professionals make their money on stock and stock option grants; I suspect a lot of this is taxed as capital gains. That's what, 15%? That's only twice the sales tax in California. And since it's not covered by payroll tax (15% counting employer and employee contributions, or for the self-employed, although I think it's capped at some point per year) it could almost be considered tax-free.

Posted by: Warren Terra | Aug 5, 2007 11:52:48 PM

"I don't want to make Celeste Baranski worse off. In fact, part of the argument for progressive taxation is that taxing away more of her money will do very little to harm her. I just know that by taxing her at higher rates and using the proceeds to help teachers -- not to mention people with infectious diseases in developing countries -- we can make the world a much better place."

I for one see no reason why paying teachers who perform poorly more money and sending money to sick people abroad will make the world a better place.

Posted by: Stan | Aug 5, 2007 11:53:59 PM

I completely agree with Stan. If we spend money to reward the teachers in direct proportion to how poor their performance is and furthermore send money abroad in such a way that we convince foreigners to become diseased, surely we will be compounding our problems.

Posted by: Warren Terra | Aug 6, 2007 12:08:08 AM

To Stan and Warren: higher teachers' salaries will attract more talented people to the profession.

Posted by: Steve | Aug 6, 2007 2:19:58 AM

To Steve: Was I really too subtle?

Posted by: Warren Terra | Aug 6, 2007 2:43:53 AM

I suppose that this might be a good point at which to promote John Edwards' plan to raise the top capital gains tax rate.

Posted by: Neil the Ethical Werewolf | Aug 6, 2007 3:02:51 AM

Yes, lets tax the rich and use those taxes to improve everyone's well being. Many studies show that the life expectancy of the rich goes up the when those at the bottom have their basic needs met. So, I say we reward the rich with a longer life expectancy by taxing them. This might also get Democrats a few pro-life votes if framed correctly.

Posted by: jncam | Aug 6, 2007 3:35:43 AM

There's something else involved here and it's really obvious but I think worth mentioning. The wealthy can stay wealthy in this country because every part of our economic system benefits them and penalizes those with less. Credit for is cheap for the wealthy. This encourages things like real estate speculation further driving up the prices of homes (though we'll see how well that works out in the next six months or so). Who would argue against the charitable contributions of the wealthy? Well, perhaps me. In a lot of cases foundations created by the wealthy, while doing good work, also are shelters for keeping more money in the family and social circles because these foundations seldom employ people who aren't similarly economically situated. So the children, spouses and relatives of the better off get fat foundation gigs while directing a smaller portion of the money towards the charity's goals. And while this point may be tangental to some extent, even employers are now using credit scores to determine employment. The upshot of that is obvious, the better your credit score, the better job is available and, since your credit rating is negatively impacted every time you check it (no matter how small that hit is) those will lower scores can less afford to even seek jobs that have this qualifier.

There are other arguments to be made but my point is that we've developed a wonderful system to reinforce wealth (and poverty) in this country. Progressive taxation is just part of the strategy to even things out here.

Oh and to anyone who wants to whine out that most intellectually dishonest argument about progressive taxation discouraging wealth and productivity, the response to that is simple. Try not being wealthy for awhile, that my friends is a big incentive to get out and and be productive.

Posted by: ice weasel | Aug 6, 2007 3:47:04 AM

Yes, it is criminal that capital gains and dividend tax rates are lower than earned income rates, so start there.

Imagine that you have $1-2 million in the bank. You could be looking at $500-600 thousand to educate your kids. You face the risk like everyone else of losing your employer-providing healthcare, and catastrophic illness could easily wipe out what is left. How secure should anyone with this level of assets feel in this society? There are good reasons why these people do not feel filthy rich.

Posted by: bob h | Aug 6, 2007 7:00:53 AM

Yes, but why are you spending that much money to educate your kids again? And surely if you've got that sort of dough, you can afford really good health coverage. Sure, a disaster could ruin your nest egg, but hell, the economy could collapse tomorrow and render paper money practically worthless. Even rich people can't avoid all possible risks. That doesn't change the fact that a whole slew of insecurities that beset the less well off aren't going to be on your radar at all.

Posted by: Gordon Lightfoot | Aug 6, 2007 8:22:54 AM

The amount of money some of the people in the article have accumulated isn't much more than the amount set aside (at great expense to taxpayers) for civil service pensions. Sure, the silly valley folks probably have far fewer cash flow problems than a teacher/fire fighter/social worker but, at the end of their respective careers the money civil servents get in pensions is probably equal to interest on $1.5MM. The benefits, especially health care, is something most well off workers in the private sector can only dream of. No surprise the people in the article are insecure. Of course if you work for Walmart no need to worry; you're doomed.

Posted by: Gearhead | Aug 6, 2007 8:48:44 AM

"Many studies show that the life expectancy of the rich goes up the when those at the bottom have their basic needs met. "

Really, jncam? Do you have some cites? I'm intrigued as to why that would be so.

Posted by: emjaybee | Aug 6, 2007 8:50:22 AM

"I just know that by taxing her at higher rates and using the proceeds to help teachers -- not to mention people with infectious diseases in developing countries -- we can make the world a much better place."

What rate? These things have impacts elsewhere, so it's really about how much higher you want to go.

And puppy dogs... those make the world a better place too.

Posted by: hmmmm | Aug 6, 2007 9:21:32 AM

"The wealthy can stay wealthy in this country because every part of our economic system benefits them and penalizes those with less. "

ice, how exactly does it penalize those with less? I agree with that the system benefits the wealthy, but what system doesn't? They're wealthy. I imagine the wealthy have it pretty good in France's system too.

Posted by: hmmmm | Aug 6, 2007 9:26:54 AM

Neil we don't need your Edwards whoring.

Posted by: Phil | Aug 6, 2007 10:08:36 AM

Neil we don't need your Edwards whoring.

Nominated for dumbest comment on the thread thus far.

Posted by: WB Reeves | Aug 6, 2007 10:23:05 AM

Sure, the silly valley folks probably have far fewer cash flow problems than a teacher/fire fighter/social worker but, at the end of their respective careers the money civil servents get in pensions is probably equal to interest on $1.5MM.

Let's see--$1.5 million, invested at 6% per annum, yields $90,000 a year. Yeah, that's exactly the ordinary pension for a teacher/firefighter/social worker.

Posted by: rea | Aug 6, 2007 10:28:58 AM

Gearhead,

Thats a good point about civil servant pensions. In fact, we'd be better off if Uncle Sam provided (or required) civil service benefits to every worker (defined benefits pensions, health coverage, work hours and vacation schedule).

Posted by: beowulf | Aug 6, 2007 10:31:26 AM

Jeez, Phil, looks like somebody has a case of the Mondays.

This Laffer curve stuff is so absurd. As long as there is any financial incentive, people are going to work. As long as there is any level of incentive to put in more hours, people are are going to put in more hours. If a $1 million salary puts more money in a person's pocket than a $900,000 salary, then people are going to go after that $1 million salary, no matter how much higher they will be taxed for it.

And this is, of course, besides all the other incentives for working hard: promotions, patents, status, the challenge of solving tough problems, boredom outside work, etc.

I just know that by taxing her at higher rates and using the proceeds to help teachers -- not to mention people with infectious diseases in developing countries -- we can make the world a much better place.

This is true. However, there's more to progressive taxation that this. The wealthy in this country - in any country - benefit greatly from publicly-funded infrastructure, research, subsidies - both in the past and ongoing. Their reward for being able and willing to creatively take advantage of all these public benefits is financial gain. At the same time, it's hardly unreasonable for the public to expect a return on its own investment.

That's the case for progressive taxation.

Posted by: Stephen | Aug 6, 2007 10:44:45 AM

For Stephen and Neil:

http://cafehayek.typepad.com/hayek/2004/10/prescott_on_tax.html

Seems like taxes do impact work.

Posted by: hmmmm | Aug 6, 2007 10:57:14 AM

hmmmm,

Oh please. First we're told that Prescott has found the reason why Europeans don't work as much as Americans: TAXES!

Then we're told that actually, Europeans do work as many hours as Americans, they just have this massive underground economy. I'd be a little more inclined to believe Prescott's conclusions if he could settle on what his basic premise is.

Again, this stuff ignores basic human psychology. Duncan has a post up that addresses this issue, at least tangentially. Some economists have a Grand Unifying Theory which explains all data and takes no notice of the human factor. Others understand that human beings don't live according to academic theories.

No matter the tax rate, if a human being has a chance to make more money, that person will do so in almost every case. No one, when looking at a raise in their salary, is going to pore over the IRS's tax tables as part of their decision-making process. No one looks at the level above them in the hierarchy, realizes that its pay grade comes with a tax rate that's just too darn high and slacks off just enough to stay out of the running for promotions while working hard enough to ensure their own continued employment at their position.

Seriously, that's what is being suggested here. Even the recent stuff from CEO types where one claimed that if his taxes went up he wouldn't work as hard is nonsense. If every major company's CEO salary dropped to $1 million a year, they wouldn't slack off. They wouldn't be able to, because the boards of directors would just find someone else. If $1 million is the most anyone can make, there will still be a bunch of people waiting in the wings for their chance to make that $1 million.

Increasing the rate at which the wealthy are taxed will not change the fact that people want to make more money. So what if they can't make it as quickly as before? They still have that goal in front of them, and will still put in the hours needed or whatever to reach that goal.

Economics is a surprisingly insular discipline with the expectation that every behavior can be explained by some theorem or another. Given that, it's not surprising that Prescott thinks he can explain away centuries of history and the complexities found in multiple cultures with some pop-economic gibberish.

However - and it can't be emphasized enough - psychology is far more important and far more powerful than any theory that Prescott or anyone else can employ in their attempt to make the world fit their presuppositions.

Posted by: Stephen | Aug 6, 2007 11:30:43 AM

Hear, hear Stephen. There has been a steady degeneration towards a vulgar economic determinism on the Right. They start with an apriori model of "human nature" based on ideological assumptions and never look back.

Posted by: WB Reeves | Aug 6, 2007 11:39:24 AM

We cannot complain anyone for their higher income until they get it from right ways. Silicon valley people working hard, and utilizing their knowledge to make dollars.
life insurance derbyshire

Posted by: Peter | Aug 6, 2007 11:49:56 AM

Those actuarial retirement assets are hardly equivalent to personal financial asset. While assets are set aside for retired public employees, the idea is those asset and derived income will be draw down to pay for their pension and other benefits. And if actuaries does their job right, draw them down to exactly zero at the time of their death. Maybe not in an person by person level, but in aggregate, that's the goal.

Now in aggregate, does anybody really expect those poor Silicon Valley millionaires will outlive their savings and leave no estate to their heirs, make inequality worse into future generations?

Too put it another way, there are financial products out there that can mimic public sector pension benefits. How many Silicon Valley millionaires do so right now? Keep in mind that some insurance companies have higher S&P/Moody rating than some state governments. But I don't see the Silicon Valley millionaires buying annuities en mass.

Posted by: kanchou | Aug 6, 2007 11:54:31 AM

Stephen,

Prescott has a nobel prize and data; you have a blog. Whom am I to trust?

Posted by: hmmmm | Aug 6, 2007 12:00:21 PM

Prescott has a nobel prize and data; you have a blog. Whom am I to trust?

The received wisdom of entrenched authority of course.

Next time try responding to the objections raised.

Posted by: WB Reeves | Aug 6, 2007 12:10:40 PM

Reeves,

what you have here is typical liberal thinking when it comes to economics: i can do X, with no impact on Y. Neil and Stephen assume we can raise taxes on these folks without consequence. Prescott seem to have data that proves this to be an incorrect assumption. This doesn't mean that Neil and Stephen have the wrong idea - if you want to increase the marginal rate for the top segments to help teacher and provide puppy dogs, fine, just do so while addressing the consequences.

Posted by: hmmmm | Aug 6, 2007 12:59:24 PM

Hmmmmm,

You're not addressing anything substantive here. Rather, you are compounding your previous intellectual laziness by attacking a caricature. The fact that you refer to the "the data" without actually egaging the criticisms made by Stephen, suggests that your own grasp of "the data" is somewhat less than sure.

You're really in no position to be ridiculing the presumed credulity of others.

Posted by: WB Reeves | Aug 6, 2007 1:15:58 PM

"They start with an apriori model of "human nature" based on ideological assumptions and never look back."

That is EXACTLY what Stephen does in all his posts. He just announces that human psychology dictates whatever he happens to believe. That he does not understand the basic premise of the Laffer curve does not bode well for the rest of his arguments.

Posted by: Alex | Aug 6, 2007 1:16:23 PM

Neil and Stephen assume we can raise taxes on these folks without consequence.

Nowhere is this claim made. Rather, my claim - and I think Neil would agree - is that we can raise taxes without impoverishing the wealthy and that doing so will have a negligible effect - if any at all - on just how hard people will be willing to work in order to reach higher income levels.

Prescott is arguing that people think about and hate taxes so much that they will deliberately sabotage their own career advancement - and subsequent net increases in their personal wealth - in order to avoid a higher marginal tax rate.

If I was offered $1 million but was told that 90% would go to the government, I would still accept it because that would mean a net gain of $100,000 that I don't currently have. I'd complain about taxes, of course, but I wouldn't turn down $100,000 just because I don't like taxes.

A Nobel Prize doesn't mean that all of one's subsequent work, no matter how patently absurd, should be accepted without question. At any rate, you're clearly going to accept Prescott's findings over mine because they fit your preferred view of how things work, Nobel Prize or not.

Posted by: Stephen | Aug 6, 2007 1:22:30 PM

That is EXACTLY what Stephen does in all his posts. He just announces that human psychology dictates whatever he happens to believe.

This could only be true if what Stephen referred to as "human psychology" were limited by the dictates of an economic theory. My impression is that Stephen is referring to something external to economic theory. To whit, knowlege gained from direct clinical observation and study of human psychology. This doesn't necessarily make him right in his judgements but it is an entirely different kettle of fish from what I described.

It isn't a question of whether both sides have and opinion. It's a question of the respective basis of such opinions.

Stephen can correct me if I've read him wrong.

Posted by: WB Reeves | Aug 6, 2007 1:27:30 PM

There is a balance between the two.

A tax rate of 100 percent, where the government just distributed the income back to everyone equally would lead some (although not all) to work less or not work at all. It has been tried in the United States, for about two years, by those noted lefists the Pilgrims. It didn't work, and no serious U.S. politician has suggested that sort of communism since.

And, yes, I'm sure there is a lower point where people might slack off rather than getting a promotion that would only bring them an insigificant pay increase after taxes. (Freakonomics discussion of real estate agents and the prices they get for their homes as opposed to what they get for a clients' home springs to mind.) We're clearly quite a distance from that amount, however. Now, I don't know the perfect balance, but there is definitely a benefit to the wealthy from having a society that is prosperous at all levels. A well-educated populace from which to draw a work force, well-maintained infrastructure worked on by people who earn fair wages for their work, a safer environment that saves the trouble of hiring private guards, the stability that reduces risks to investments, and on and on. You'll note that Grover Norquist hasn't actually moved to some place with no tax rate to see how he'd do, because they're not safe or pleasant places to live.

The Pilgrims, BTW, based their initial system on a pretty radical document called the Acts of the Apostles, where the earliest disciples are described establishing these kinds of communes, where people sold everything they had to join. In fact, an angel of the Lord is said to have struck down poor Annais for withholding half of the profits on one item for himself. The Pilgrims attempt to follow this model could be considered an early example of Biblical literalism being a less than effective means of secular governance.

Posted by: Magenta | Aug 6, 2007 1:27:46 PM

Magenta has a good point. The Laffer Curve is accurate in all of 2 points: at 0% and 100%. At those points it makes sense. All other points, it is dubious.

And even if it is accurate, I have never seen the curve drawn with, you know, numbers along the axes. Why? Because nobody knows what those axes are! NOBODY! Not Laffer, not Larry Kudlow, not Hmmmmmm, nobody.

I recently got a raise that bumped me into a higher tax bracket. Guess what? I took the money and will pay the higher taxes for those dollars. Because I still come out ahead. That's the point of a progressive system. At no point does someone lose by making more money. Does anyone here seriously think that someone will work less because their taxes go up from 35% to 39.6%? That is ridiculous. Guess what, wingnuts - most people appreciate what government, at least a good government, does for them. Most people don't mind paying their taxes.

Bump it from 35% to 75% and we may start to see some problems. But that's 75%. Right now at 35% we are very far from Laffer's maxima.

Posted by: Joshua | Aug 6, 2007 1:37:36 PM

Magenta, I'm almost certain that you have conflated the Pilgrims with Jamestown. I don't think either of these colonies could be described as anything remotely resembling communism, although the Governor of the latter was forced at one point to issue an edict stating that those who did not work would not eat. If you have a citation proving otherwise I'd be eager to see it.

Posted by: WB Reeves | Aug 6, 2007 1:43:30 PM

That he does not understand the basic premise of the Laffer curve does not bode well for the rest of his arguments.

Ha ha. Ok, let's get some criteria out there. I don't have a problem with the Laffer curve per se. It's just a fairly complex way of saying that there exists a tax rate at which the government can collect the most revenue.

Obviously a tax rate of 100% couldn't work - and has never been tried, despite what some idealogues would like us to think. Even ardent liberals like myself don't really think that absolute rates in the 90%s are all that useful. But somewhere in there we have a tax rate at which the government is going to collect maximum revenue. Obviously the rate at which this happens is a matter of some contention.

The problem with the Laffer curve, really, is that it doesn't say all that much, which is why it's so popular with anti-tax people. "A tax rate of 100% doesn't work! Just look at the Laffer curve! Therefore, the optimum tax rate must be (20%, 10%, lower than whatever the current rate is)!"

The other problem with the Laffer curve is that people use it to predict human behavior. That's where we get the idea that someone will actually turn down an increase in their personal wealth because they don't want to pay a higher marginal tax rate. And that's where I have a problem, and why I contend that proponents of this type of thinking just don't understand - or ignore intentionally - basic human psychology.

If you disagree with my conclusions, then argue with what I use to support them. Don't just run back to the Laffer curve and expect that to be a sufficient argument.

Posted by: Stephen | Aug 6, 2007 1:46:07 PM

WB Reeves,

Yes, that edict was basically when the system changed. From 1620 to 1623, however, the colony tried a communal system that failed to feed them. “young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense,” Gov. Bradford found.

http://www.independent.org/newsroom/article.asp?id=1423.
http://www.businessreform.com/article.php?articleID=11584
http://users.law.capital.edu/dmayer/blog/blogIndex.asp?entry=20061121.asp

Jamestown was a commercial venture by the London Company. It failed, though, at actually making a profit and the company went bankrupt. Swampy, miserable place for a settlement, and the guys they sent were by and large young men looking for easy profit. The realities of Jamestown were that there were no easy fortunes.

I'm sorry I didn't provide links initially. I thought that was pretty common knowledge.

Posted by: Magenta | Aug 6, 2007 2:05:37 PM

BTW, I went to right-wing sources because they're usually the ones to point out, "Hey! The Pilgrims tried this, and it didn't work." Again, however, I point out that it is an unreasonable argument to say that because 100 percent tax rates are disincentives to work that *all* taxes are disincentives to work. I don't mind paying my fair share in taxes to provide for a healthy society.

Posted by: Magenta | Aug 6, 2007 2:13:01 PM

Stephen:

You are wrong for 2 reasons.

First, you assume or ignore the fact that while CEO's may indeed work if their salary is capped at $1 million, they won't work as hard, be as creative, etc... as they would work if their potential salary was unbounded. And restricting CEO pay wouldn't work anyway because you would have to forbid stock options and other types of incentive based pay.

Secondly, you support your argument by talking about "basic human psychology", a term you don't care to explain perhaps because there is no such thing as basic human psychology. As long as you don't define this premise, your argument in invalid.

Thank you, have a nice day

Posted by: Stan | Aug 6, 2007 2:16:21 PM

Rather, my claim - and I think Neil would agree - is that we can raise taxes without impoverishing the wealthy and that doing so will have a negligible effect - if any at all - on just how hard people will be willing to work in order to reach higher income levels.

Right on. And as I point out above, I don't see a compelling reason to think that increasing the top tax rate from 35% to 40% will make people work substantially less hard. In fact, it's possible that it'll make them work harder so that they can get to the targeted sum of money that allows them to leave their jobs.

Posted by: Neil the Ethical Werewolf | Aug 6, 2007 2:28:34 PM

Unfortunately, it seems like a whole lot of CEOs are working hard and being creative about ways in which to increase their salaries rather than running their companies well. But no matter.

Posted by: Magenta | Aug 6, 2007 2:31:04 PM

Secondly, you support your argument by talking about "basic human psychology", a term you don't care to explain perhaps because there is no such thing as basic human psychology.

Be interesting to know if Stan would extend his denial to the idea of "human nature" or the market based notion of humans as "rational actors".

In the meanwhile, I suppose we can stop spending money on everything under the heading of "mental health", since the absence of "basic human psychology" renders the idea of psychological health moot.

Magenta, thanks for the links. I'll be doing some research. As for how widely known the economic character of the first three years of Plymouth Plantation is, you might be surprised.

I've read more than the average person on the history of the colony, though with no particular emphasis on economy. If there were references to this aspect, they were so fleeting as to have made no impression on my memory. Your links bear this observation out in that they are all to publications with a focus on economics rather than historical studies.

BTW, the "those who do not work, shall not eat" edict was issued by the governor of Jamestown, not Bradford.

Posted by: WB Reeves | Aug 6, 2007 2:46:46 PM

Reeves,

Stephen doesn't address the Prescott study; he dismissed the op-ed, which has multiple concepts leading to a central point that marginal tax rates affect labor and work.

He dismisses this out of hand.

This is an economics study by a Nobel Prize winner. Is Prescott lying? Is his analysis wrong? Can someone send a link to something that refutes his finding?

How can I address Stephen’s argument when his premise is: "Prescott's wrong; economists live in a vacuum; and they never think about the psychology!" Prescott seems to have a pretty credit analysis, based on his findings comparing a number of countries across cultures and continents that indicate the contrary. I think the burden of proof is on Stephen for now.

Neil and Stephen

Given that you’re stating that they understand the consequence, then I’ll move on. I don’t necessarily disagree that a couple of points increase on the top marginal tax rate would be fairly benign in overall terms; especially if the additional revenues are put to decent use. This wasn’t openly stated by either of you, so I thought I’d point out the Prescott piece.

Posted by: hmmmm | Aug 6, 2007 2:53:16 PM

WB Reeves,

Ah, biblical quote, so I'm not surprised similar language for each colony.

I am often surprised at how much history I know that other people don't. Not a statement of arrogance, BTW, I am just constantly reminded that most of my high school history teachers -- and especially the man I had for AP U.S. history -- were absolute treasures I could only partially appreciate at the time.

Posted by: Magenta | Aug 6, 2007 2:54:50 PM

Missed this part from Neil:

In fact, it's possible that it'll make them work harder so that they can get to the targeted sum of money that allows them to leave their jobs.

Again, how do you come to this conclusion? I'd be interested to understand the economics better; especially in light of Prescott piece.

Posted by: hmmmm | Aug 6, 2007 3:01:56 PM

"Unfortunately, it seems like a whole lot of CEOs are working hard and being creative about ways in which to increase their salaries rather than running their companies well. But no matter."

See, that is the nice thing about the law that requires CEO's to maximize profit. If you assume that maximizing profit indicates a good company, we have a syllogism that requires CEO's to run their company well.

"Be interesting to know if Stan would extend his denial to the idea of "human nature" or the market based notion of humans as "rational actors"."

I only implied that human psychology is in no way basic. However, since you asked, my idea of rationality is fairly nuanced. Humans are rational actors. Always. But rationality cannot exist outside of a goal. It would be useless to be rational without a goal. Economists generally assume our goal as humans is to maximize utility, or sometimes the assumption is that we want to maximize money. However, these are not the only goals in life. Some people like to maximize how good they feel, or how much leisure time they have, or how much time with their family they have. To say that we don't behave rationally in the context of these goals is irrational. To say that we are not "rational actors" is to say that we are all floating around aimlessly in this world.

But on the other hand, our brains are not perfectly rational at all times. Sometimes we make mistaken decisions, which is why behavioral economists have come up with the idea that we are "boundedly rational".

Posted by: Stan | Aug 6, 2007 3:38:26 PM

If I would assume that maximizing profit (on paper) always indicates a good company, I also would be foolish or naive. In this case, the law, sir, is a ass.

Posted by: Magenta | Aug 6, 2007 3:59:58 PM

Secondly, you support your argument by talking about "basic human psychology", a term you don't care to explain perhaps because there is no such thing as basic human psychology.

You call that an "implied" statement? Well if you must, you must but that sound you hear is the collective giggling in this corner of the blogosphere.

Unless you accept the idea of a basic human psychology, you can't enumerate its characteristics, such as rational vs. irrational. Since your entire argument is based on a self referential, theoretical construct, it's not surprizing that you don't appreciate this.

Posted by: WB Reeves | Aug 6, 2007 4:09:46 PM

Reeves got the phrasing better when he said "human nature." So perhaps we can stop quibbling over whether there is, indeed, a "basic human psychology" or not. My point is that the claim of people sabotaging their own wealth potential because of marginal tax rates is absurd on its face precisely because we see human beings acting in completely opposite ways all the time. It's in our nature, IMO, to not consider marginal tax rates - or any type of tax issues at all - when planning careers. Investment choices, sure, but even then if we're reasonably assured of a net gain, we will go ahead with the plan no matter what the taxes are.

What Prescott and others are arguing is not about how hard a person will work at their job after a tax increase vs. before that increase. By trying to paint Europe's work culture as an artificial construct put in place primarily by high tax rates, Prescott claims that entire populations have decided to just completely take it easy, work only 35 hours a week, take August off every year, spend 3 hours each day at lunch, etc. I would hope a Nobel Prize winner would be a little more cautious before ascribing such cultural practices - many of which predate the current tax structures - to recent developments in Europe's governments.

Humans are rational actors. Always.

And this is where it becomes clear that we're not even speaking the same language. I'm glad that people have come up with ways to explain away humanity's irrationality by redefining "rational" in such a way to encompass what most of us consider to be its antonym. But outside word games used to a posteriori justify self-serving and deeply flawed economic theories, "rational" and "human being" are rarely in the same solar system, let alone the same head.

Posted by: Stephen | Aug 6, 2007 4:28:48 PM

"My point is that the claim of people sabotaging their own wealth potential because of marginal tax rates is absurd on its face precisely because we see human beings acting in completely opposite ways all the time. It's in our nature, IMO, to not consider marginal tax rates - or any type of tax issues at all - when planning careers."

I am in favor of bumping up the top marginal tax rates, but this opinion is just crazy and has to go. I just have to ask, what is it you do for a living? I thought long and hard about my career choices. Should I go into medicine? Law? Finance? Engineering? I thought about how much I would be working, how much I would make, what kind of initial investment it would require and how much I would enjoy it. And money was a huge factor for me. Tax rates were therefore considered implicitly. Now I ended up choosing to pursue a lower income, but less stressful and more enjoyable career. But it was a close decision. And if I made less doing what I do or could have made more doing something else I might have. But if the top rate was 70% or more I definitely wouldn't have considered a career like law. Its not about sabotaging your wealth, its about how much money you need to be willing to give up weekends. You can say this is irrelevant to the present discussion- and I'd agree- irrelevant to the question of whether we should bump the rate from 35-40%, but not to the question of whether marginal tax rates impacts career choices. Because 70% rates are not out of the realm of possibility- we've seen them in this country before.

Posted by: mpowell | Aug 6, 2007 5:01:54 PM

At the professional level, income is not the sole determinant of people's decisions to change jobs. Most sensible professionals will change jobs for even a slight raise in salary in order to get more responsibility or experience, or to sign on with a more prestigious firm. In a competitive economy, few have other choices.

For what it's worth, my public finance text (Rosen) stated that marginal tax rates only had an effect on labor force participation of married women, though it observed that higher marginal tax rates could have a non-quantifiable effect on attitudes toward work.

Posted by: Steve | Aug 6, 2007 5:34:14 PM

Stephen,

In Prescott's WSJ peice, he mentions the fact that he looks at Japan and non-European countries and finds the same results. So his claim has nothing to do with the Euro/USA cultural differences.

Posted by: hmmmm | Aug 6, 2007 6:26:13 PM

Tax rates were therefore considered implicitly.

No, they weren't. What was considered was what you said before this: "how much I would be working, how much I would make, what kind of initial investment it would require and how much I would enjoy it." At any rate, all of the jobs you mention are fairly well-paying and therefore likely to all be within that 70% tax bracket you mentioned. So it wouldn't have been an issue.

Because 70% rates are not out of the realm of possibility- we've seen them in this country before.

Ah, yes, that was during the 2nd Great Depression of the 1950s, when the nation faced a severe shortage of doctors, lawyers and CEOs. It was terrible how no one ever bothered to follow a traditionally high-paying career, all because of those high marginal tax rates.

See, the facts on the ground simply don't support the idea that people factor marginal tax rates into their life-planning decisions.

But if the top rate was 70% or more I definitely wouldn't have considered a career like law.

As gratifying as this may be to the Prescott disciples, a dataset of one isn't really going to help much. The only reason this could possibly be true is that money simply isn't that much of a motivator for you. The income disparity between law and pretty much everything else is so great that you'll still come out ahead financially as a lawyer no matter what the marginal tax rate is.

That's the point I've been trying to make. We simply cannot predict behavior based upon marginal tax rates, which is what Prescott is trying to do.

I just have to ask, what is it you do for a living?

Oh, I don't have a job. I'm a 33-year-old guy with a Ph.D in Liberal Arts who collects welfare and bitches about "The Man."

Posted by: Stephen | Aug 6, 2007 6:33:35 PM

There is no such thing as the Nobel Prize in Economics. It wasn't in Alfred Nobel's will, and his relatives have demanded (without effect) that the award cease to be issued in connection with his name:
http://www.buddycom.com/ecol/Brainfood/nobel.html

And the primary reason that so many monetarists have won the The Bank of Sweden Prize in Economic Sciences is because of right-wing influence on the selection committee:
http://www.huppi.com/kangaroo/L-chinobel.htm

Posted by: Josh G. | Aug 6, 2007 6:44:34 PM

"See, the facts on the ground simply don't support the idea that people factor marginal tax rates into their life-planning decisions."

What facts would those be? That there was no shortage of lawyers? You have no idea how many people altered their work schedules because increased hours produced diminishing returns or how many people opted not to become lawyers or physicians or CEOs. We can't measure how much worse off society is because someone with immense talent chooses a different path. That there was no shortage could just as well mean that the positions were filled by less talented people, making all of society worse off. Mpowell nailed it on the head. People may not pore over IRS charts, they just figure out pretty quickly that leisure is a better option.

What we can measure is that since marginal tax rates were reduced from oppressive levels, the United States has enjoyed the largest sustained economic growth ever. That's a pretty good reason to make predictions about behavior based upon marginal tax rates.

Posted by: Alex | Aug 6, 2007 8:17:24 PM

What we can measure is that since marginal tax rates were reduced from oppressive levels, the United States has enjoyed the largest sustained economic growth ever.

I'd like to propose that when people are merely quoting talking points, they cite the source.

Your statement is like David Brooks arguing that since wages are up since the early 1990s, Bush's economic policies have been good for average Americans.

You have no idea how many people altered their work schedules because increased hours produced diminishing returns or how many people opted not to become lawyers or physicians or CEOs.

Why is it that people are making bold claims about the immense and near-universal effects of marginal tax rates, but I'm the one that supposed to prove things? You don't have any idea what effect marginal tax rates have had, because - as you said - we simply can't measure these types of things. Period. The end.

According to this standard of evidence, then, Prescott is full of shit, as is everyone else trying to argue that high marginal tax rates are able to change the character of an entire society. This is a time to apply the cliche about the simplest solutions often being the best ones.

Since we know that people take into account a myriad of factors when making career choices and when making decisions, on a daily basis, of just how hard they will work at their jobs, and since we know that a nation's culture is incredibly complex, with roots that can reach back literally thousands of years, it hardly seems intellectually sound to try and explain all of these things by the invocation of one small aspect of the latest incarnation of that nation's tax code.

Posted by: Stephen | Aug 6, 2007 8:48:54 PM

Stephen,

you realize Prescott was citing a study he co-authored in his op-ed? one based on a lot of data from a number of countries with different cultures. he just wasn't making this stuff up. the other neat thing is that he could use statistical tools to tease out which of these complex variables was causing the patterns he saw in the data. You know this, right? you know this wasn't just an op-ed from Sean Hannity?

Posted by: hmmmm | Aug 6, 2007 9:13:00 PM

you realize Prescott was citing a study he co-authored in his op-ed. . .

Lies, damn lies, and statistics. Forgive me if I fail to be adequately impressed that Prescott actually used numbers.

If I can go back to a point I made earlier, in Prescott's op-ed, based upon his use of actual statistics!!!!! he simultaneously tries to argue that Europeans work less than Americans because of their "tax bondage" and that they work just as much as, if not more than Americans.

He's willing to accept that Europeans work less hours when it's convenient for his argument, and he's willing to claim the exact opposite when it's convenient for his argument. I'm not surprised to see such elementary-level hackery in the opinion pages of the Wall Street Journal. But don't expect me to overlook such glaring inconsistencies just because he used actual statistics.

Let's face it: when people use terms like "tax bondage," they're not going to look at data objectively.

Posted by: Stephen | Aug 6, 2007 9:53:00 PM

Minor correction: stock options are not necessarily taxed at capital gains rates.

Stock options are the right to buy stock at a certain price. They're valuable if that price is lower than the current stock price. The most obvious way of turning stock options into cash is to exercise them (i.e. buy the stock at the low price you're entitled to), and then immediately sell the stock. The money you make from a same-day sale is taxed at ordinary income rates. The special capital gains rate only kicks in for investments that you hold for more than a year.

You can get the benefit of the capital gains tax if you use your options to buy stock, keep the stock for more than a year, and then sell it. I think that's a lot less common than same-day sales, but I don't really know. Certainly same-day sales, hence options getting taxed as ordinary income, are common.

No, this doesn't affect any of the policy arguments that Ezra, or anyone else, made. As I said, it's a minor technical correction.

Posted by: Matt Austern | Aug 6, 2007 9:54:36 PM

Stephen,

i think his point was that they do more taxable work in the states, not more overall work. either way, i wasn't sure you caught the bit about the study.

Posted by: hmmmm | Aug 6, 2007 10:51:51 PM

Since mpowell has decide their anecdote bears mentioning, I'll add in mine. I have never considered taxes in choosing any job. I never considered taxes when I have made my various career choices. I have never considered taxes when moving from one place to another. I have never considered the taxes I am paying when I decide how many hours I am willing to work. In fact, I have never met anyone who has made taxes a part of their decision about what job they take or what career they will choose or how many hours they will work. I have known lawyers, professors, teachers, mechanics, editors, farmers, financial planners, etc. and only the financial planners have ever talked taxes with me and that was generally in trying to sell me investments that they said were great because I could make enough by the time I retired to be in the highest tax bracket and therefore wealthy!

I have never met anyone that is even close to being like mpowell. Have I just run in very odd circles in my years in living and working in Texas, Illinois, New York City, and New England or is mpowell representative of some tiny percent of the population that lets tax law effect their career choices?

Posted by: Ricky | Aug 7, 2007 10:27:09 AM

What we can measure is that since marginal tax rates were reduced from oppressive levels, the United States has enjoyed the largest sustained economic growth ever. That's a pretty good reason to make predictions about behavior based upon marginal tax rates.

Post hoc ergo prompter hoc.

Posted by: WB Reeves | Aug 7, 2007 10:48:43 AM

For those interested in the particulars of Prescott's arguments, here are his WSJ editorial, the study he refers to, and a later study by others arguing that how governments spend tax money is just as influential to work levels as taxes are. Comparing the two studies and considering the many other confounding factors gives me limited faith in such work, but it's better than mere speculation, probably.

Posted by: Sanpete | Aug 7, 2007 11:46:47 AM

"Since mpowell has decide their anecdote bears mentioning, I'll add in mine. I have never considered taxes in choosing any job."

You don't consider Newtonian physics when you drive a car either. Not every economic decision we make is conscious or driven by our reading of various economic theories. A kid running a lemonade stand probably doesn't know much about economics, but he can figure out pretty quickly if he's making money or losing money. If you have to work 40 hours to earn $100,000 and 80 to earn $120,000, are you going to? Stephen's contention is that in every case the answer is yes. You don't ever have to consider taxes specifically, your bottom line does it for you.

"Why is it that people are making bold claims about the immense and near-universal effects of marginal tax rates, but I'm the one that supposed to prove things?"

We haven't been making those claims, just refuting your claim that marginal tax rates are irrelevant.

As for universal statements, guess who said the following:

As long as there is any financial incentive, people are going to work.

As long as there is any level of incentive to put in more hours, people are are going to put in more hours.

If a $1 million salary puts more money in a person's pocket than a $900,000 salary, then people are going to go after that $1 million salary, no matter how much higher they will be taxed for it

The wealthy in this country - in any country - benefit greatly from publicly-funded infrastructure, research, subsidies - both in the past and ongoing.

No matter the tax rate, if a human being has a chance to make more money, that person will do so in almost every case

No one, when looking at a raise in their salary, is going to pore over the IRS's tax tables as part of their decision-making process

No one looks at the level above them in the hierarchy, realizes that its pay grade comes with a tax rate that's just too darn high and slacks off just enough to stay out of the running for promotions while working hard enough to ensure their own continued employment at their position.

Increasing the rate at which the wealthy are taxed will not change the fact that people want to make more money.

Posted by: Alex | Aug 7, 2007 2:42:53 PM

Ricky, Its great to hear that you've never met anyone smart enough to realize that the tax code has an impact on earnings. You must have a lot of really bright friends. None of them have ever thought about the tax benefits of owing versus renting? Have you ever heard of a 401(k)? Right. But I'm not the one who brought anecdotal evidence into this discussion. I was responding to a claim Stephen made based on what? Not anecdotal evidence, but his belief on what motivates career choices. And as Alex pointed out, plenty of sweeping and frankly unsupportable assumptions. Its simply the case that I don't think 35% is that high. That's why I support increasing it. But because its low, people don't have to factor it in as much explicitly. But it still gets factored in. Why is NYC expensive to live in? People who do their homework know that at least one contributing factor is the state+city taxes push that number up to 50%. This would be a strong disincentive for me. But lets get back to that theoretical 70% number.

Say I work as an engineer making 100K/year. That's great. But I know as a lawyer I could work more and be depressed but make 300K/year. If I'm paying 35% a year that's a 140K difference. Could be worth it. But if taxes are 70%, that's going to be a 70K difference. Are you really claiming that this won't change anyone's mind? I can imagine an unemployed liberal arts PhD not understanding the white collar working class. But I work with a lot of people who make enough money to get by and make career choices based on these kinds of distinctions. Some people are motivated by the chance for a promotion and a 15% pay increase, others not.

Part of the reason I support increasing the max bracket, especially for obscenely high incomes, is that I don't think that extra pay is actually awarded for the economic benefits returned. Take lawyers for example. Are we really better off by having all these overpriced lawyers running around? Maybe we'd be better off if they were engineers. I think a lot of high paid positions are leveraged situations- basically people with power leveraging that power to increase their pay.

Ultimately, Stephen, you and I may not disagree that much about policy prescriptions. But I definitely think increasing the max bracket will impact decision-making. In some cases that could even be a benefit.

Posted by: mpowell | Aug 7, 2007 4:52:42 PM

If you have to work 40 hours to earn $100,000 and 80 to earn $120,000, are you going to?

That doesn't have anything to do with taxes. It really doesn't even make sense, unless you construct a fantasy scenario wherein one is offered a rather large raise with the expectation of doubling one's hours at work and that also just happens to cross a tax code line that triggers an extreme jump in the marginal tax rate.

BTW, thanks for quoting me so much. I think it comes off rather well. Anyway, taking a page from your playbook: prove me wrong, and don't construct strawmen or confuse correlation with causation.

I can imagine an unemployed liberal arts PhD not understanding the white collar working class.

Um, I wasn't being serious. To be clear, for most of the last 15 years I've served in a few different clergy positions and gotten my Masters of Divinity - just in time to realize that being a minister is not the path I should take. I've worked some other jobs, sometimes concurrently with ministerial positions. When my wife got pregnant this last time we realized that her salary could support us while mine couldn't, so we decided to have me stay home with the kids.

I haven't ever made a load of money in my own salary, but ministers are odd ducks. Since I was responsible for all of my own FICA taxes, I'm certainly aware of them - I had to pay SS on not only my cash salary, but also on the "fair market value" of the house the church provided for us. In Concord, California, which is in the East Bay. And because I didn't own the house, I didn't get any mortgage interest deduction, either.

As far as your hypothetical, again, the issue here is more about what motivates you than what motivates most people, as evidenced by "work more and be depressed." A lot of people just aren't like that, and while I may not personally know the joys of bringing a quarter million home every year, I can't imagine that even those who do would dismiss another $70,000 out of hand.

I make sweeping statements about why people work because it seems very simple to me. People work in order to make money. Generally, a "job" is something that people won't do unless they're paid for it. Since money is usually the primary motivator, it's fairly safe to assume that it will continue to be so throughout a person's career.

But there's more! If people were as concerned about taxes as you and others claim, then the Alternative Minimum Tax wouldn't be in a position to have surprised so many people this last year and in a position to surprise even more in the next. If people obsessed over taxes and changed their daily and long-term habits accordingly, then millions of Americans would have seen the AMT blowing up in their faces and would have either chosen to follow a lower-paying career or would have slacked off and not worried about promotions or sales.

But that isn't what happened, is it?

Posted by: Stephen | Aug 7, 2007 6:12:58 PM

"Ricky, Its great to hear that you've never met anyone smart enough to realize that the tax code has an impact on earnings. You must have a lot of really bright friends."

Gee, thanks for putting words in my mouth and questioning my intelligence! I was only talking about career choices and that based on my experiences (of course since I am not so bright your anecdote must trump mine) only a tiny percentage of people are thinking about taxes like you did when they decide on a career choice.

Sorry, I don't run in some elitist circle of people who work based on what they are taxed. I make more than most and that was after many years working my way through the hierarchy. I must have just been too stupid when I took that assistant's position as twenty-five-year-old to realize that I probably shouldn't have wanted to try and reach a higher level in the company because it would cause me to pay higher taxes. The fact that I am locked into a career path doesn't really give me many options to shift to something else, but if I wanted to avoid taxes I could just go work for minimum wage.

The fact of the matter is that all of the examples people are giving have people making decisions on jobs that pay $100K+ which has nothing to do with the majority of Americans. If you are making $100K a year you are the anomaly. I think the very fact that our tax code has become so less progressive is just the proof in the pudding. The only people who care enough to make sure the tax code is as favorable to them as possible are those making a lot more money than the average American. But that said, even in my interactions with people making over $100K, I have never heard them say they are concerned enough about their tax bracket to decide to change jobs or careers. The only rich people I know who grouse about their taxes are generally Republicans and they still grouse about it even after Bush's tax cut, the others generally acknowledge that the top end of Bush's tax cuts were too generous by half and would pay more, especially if the government were controlled by adults.

I honestly don't think we should be basing our tax policy on the behavior of some tiny percentage of Americans who might actually do something different or heaven-forbid be so unpatriotic to leave the country for a tax haven if the tax code becomes more progressive.

Posted by: Ricky | Aug 8, 2007 9:38:33 AM

I move from my civil service job to the private sector with the promise of greatly increased income (moving me to a higher tax bracket) along with greatly increased work responsibilities. Your claim (through your universal statements listed above) is that no one, ever, considers that the increasing income might not be worth the extra hours and the extra tax hit. You also believe, mistakenly, that the only way this decision could be made is through a person poring over tax tables and the like rather than doing what most of us do every day in our lives- figure out if the reward is worth it.

"When my wife got pregnant this last time we realized that her salary could support us while mine couldn't, so we decided to have me stay home with the kids."

Congratulations. Why not work? You had a chance to make more money. Bet you would for the right offer. You place a value on your work and on your leisure time and your family's well being. It's not worth it to work. Taxes can do the same when they reach oppressive levels.

Posted by: Alex | Aug 8, 2007 10:13:58 AM

No, I didn't have a chance to make more money, because it's so expensive to send two kids to fulltime daycare - especially when one is an infant - that our monthly daycare bills would have exceeded my net income. Ministers don't make much money usually, and when you spend a decade and a half pursuing a ministerial career, it's hard to jump into something else immediately and make a salary that's commensurate with one's age and time in the workforce.

But this wasn't about me knowing off the top of my head what the marginal tax rate is for my family's bracket. It was just a simple comparison of bills vs. income.

Even if I was faced, then or now, with a job opportunity that provided significantly more income than daycare would cost, it's still an apples/oranges comparison. Having our children stare us in the face while we discuss the pros/cons of me reentering the workforce is entirely different than doing a cost/benefits analysis of making $75,000/yr while working 50hr/wk and paying a 30% marginal rate vs. $110,000/yr while working 65hrs/wk and paying a 38.0725% marginal tax rate.

And remember, the original contention from tax jihadists like Prescott is that entire societies have structured their approach toward work and leisure based upon the difference of a few percentage points in the marginal tax rate. I'm hardly the one here who has some crazy theory to prove.

Posted by: Stephen | Aug 8, 2007 11:55:29 AM

If you work rather than not work, you make more money. There is no other option. In this case, additional work also gave rise to additional expenses. Additional or more lucrative work can also give rise to higher taxes which create additional expenses.

To be clear, the ONLY point I'm arguing is that marginal tax rates are not irrelevant to people's behavior or the economy as you have claimed they are. I've not argued or suggested that there is a linear equation in which every uptick in marginal rates directly decreases incentives to work or make more money.

Posted by: Alex | Aug 8, 2007 1:11:37 PM

If you work rather than not work, you make more money. There is no other option. In this case, additional work also gave rise to additional expenses.

You seem to be unable to understand the term "net." Or perhaps you're just playing a game of semantics. Either way, you're not really making a point here.

You also have failed to address the core of my argument - indeed no one has been able, apparently, to even recognize it's there - that there are simply some issues and concepts more important to the average person than the marginal tax rate - especially when we start to consider what the marginal tax rate might be at various hypothetical wage levels.

Again, I'd really like someone to explain how the AMT managed to become such a huge problem in a nation full of people who give even a small amount of thought to the nation's tax code when making either long or short-term job decisions.

Posted by: Stephen | Aug 8, 2007 1:29:09 PM

Yes, the semantics when discussing income, money, and work actually matter though and you're confusing them.

"You also have failed to address the core of my argument - indeed no one has been able, apparently, to even recognize it's there - that there are simply some issues and concepts more important to the average person than the marginal tax rate - especially when we start to consider what the marginal tax rate might be at various hypothetical wage levels."

No, the core of your argument was that marginal tax rates are irrelevant because as long as there was any financial incentive to make more money then people would do it. I've argued that the diminishing return you receive on your work does influence people's behavior.

"Again, I'd really like someone to explain how the AMT managed to become such a huge problem in a nation full of people who give even a small amount of thought to the nation's tax code when making either long or short-term job decisions."

Gee, why do you think the AMT is such a huge problem? Tax rates don't matter after all, right?

Posted by: Alex | Aug 8, 2007 6:01:15 PM

"My understanding is that most software professionals make their money on stock and stock option grants; I suspect a lot of this is taxed as capital gains. That's what, 15%? That's only twice the sales tax in California. "

The first post by Mr. Terra is quite amusing. What is even more amusing is that none of the following commentators picked up on the factual error of his post. Of course the most amusing part is that Mr. Terra most likely considers himself an intelligent and fair minded individual.

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