I had an interesting chat with a friend the other day. He works in a technical field and makes about twice what I make a year–and that fact doesn’t bother me a bit. What I adore about being an educator is that I get lots of time “off” from the job, which means that I can read, study, and write. It’s what I’m called to do. Other people are called to other things and their salary, like mine, should be determined by the forces of the free market. What people want, they pay for.
Success doesn’t bother me. And since I’m not a greedy person, I don’t have hateful or covetous emotions when I see others doing well. That applies even when their income is more than mine.
Recently, a valued colleague at the college where I teach shared with me something from Martin Luther’s Large Catechism. I’d like to adopt it for my own and live by it. I encourage you to do likewise. Here is the quotation: “If our neighbor has property, we are to be glad about it, allow him to enjoy it, and promote and protect everything that may be of service to him.” An attitude such as this is certainly a far cry from what we’re hearing from the politicians in Washington, DC these days. While they pit citizens of differing economic strata against one another, the elected elite in that city of power and glory are making a darned fine living … far beyond what most Americans experience.
Anyway, my techno-friend shared with me the fact that, although his employer didn’t have as good a year as before the economic downturn, he still offered generous bonuses to his employees. My friend received a bonus of $1000.
Sounds nice, doesn’t it? After taxes, however, his actual income was $560. That’s right. State and federal taxes gobbled up 44% of this extra bounty.
Admittedly, my friend and his wife are “DINKS”; they’re a married working couple without children, “Dual Income and No KidS.” She works as an administrative assistant for a legal firm and together they make about $125,000 a year. Neither their home nor their lifestyle is extravagant. They are both good citizens, at least as far as I can tell. Above all, they’re productive.
In other words, they are exactly the type of people who probably deserve a financial reward from their employers. Yet when the primary wage earner in the family gets that reward, government (mostly federal government) steps in to take almost half before a single cent of it makes it into the wager earner’s pocket.
Perhaps you’re thinking that this is reasonable. After all, look at the benefits that this couple enjoys. Certainly, if you think this way, to a certain extent you are correct. But the fact is that taxation comes with a high price. It’s a price that is probably higher than you realize.
Imagine my friend to be in a situation where he can choose to earn that extra $1000 by doing more than usual. Rather than a bonus, imagine that the $1000 is offered to those in his company who want to put in an extra number of hours or complete a certain number of additional projects. Most would probably jump at the offer, except for one thing. If they know my friend’s story they might hesitate.
Why? Well, because in government terms $1000 isn’t $1000. For those in my friend’s tax bracket it’s only $560. So when they decide if it’s worth the trouble they have to decide not about the $1000 but about the 56% of $1000. And a certain percentage of those workers will simply decline the offer.
That’s right. They’ll decline the offer. For whatever reason, they’ll decide that the payoff isn’t worth the trouble or the worry or the extra time or the hours away from home. It doesn’t really matter why because time belongs to them. They get to decide how to use it.
Here’s the lesson, dear friends: taxation comes with a price. And not only that, but taxation is by its nature punitive and regressive. The more success you have, the more taxes you pay. For most of you, the more hours you put in and the more money you make, the more the government smiles as it banks on your determination and strenuous efforts. That hurts everybody. It cripples our economy. I suspect that all across this nation there are millions who are choosing to work less because the incentive to do more is lower than they’re willing to accept. I say that as a business owner in conversation with other business owners. And there is no reason to think that we’re unique.
Let’s add insult to injury as we remind you that the US Tax Code is supposedly “progressive.” That means that as you earn more, you not only pay more dollars in the same tax bracket, you actually move up into new brackets and the percentage of your income that goes to government becomes even higher.
Are you feeling good about your hard work yet? Are those extra hours paying off? Of course they are! Well, not for you … but for the politicians who take your money and use it to purchase votes. For them it’s a great investment. They get the big salary, the perks and benefits, and the parties and trips paid for by corporate backers: free trips for themselves and family, houses in the Caribbean, and a whole host of gifts that the average American taxpayer will never be able to afford. How many members of Congress became millionaires after being elected to the House or Senate? Sounds fishy to me.
If we go over “the fiscal cliff” on January 1st, the money going to DC will increase tremendously. And don’t be fooled by the rhetoric. Everyone will pay for it, not just the so-called “rich.”
Washington isn’t the “District of Columbia.” It’s the “District of Covetousness.”
Instead of punishing success, America needs a taxation system that rewards hard work. What if extra work was taxed at a lower rate? What if every hour after 35 in a week was taxed less rather than more? What would happen if the elected elite who decide our tax burden realized that incentive actually means something and that people work less when they believe the payoff isn’t worthwhile?
What if taxation were for the purpose of funding the constitutionally-mandated functions of government rather than placating particular voting constituencies and ensuring the re-election of incumbent politicians?
Such questions serve as the explanation for why I support term limits–drastic term limits. This nation needs men and women who serve to solve problems, not those who serve to advance personal or party agendas.
What if taxation encouraged rather than discouraged hard work and extra effort? We have smart cars and smart phones, so why not smart taxation?
What a novel idea.
The Liberty Professor 
John, I’d like to think about something you put in big, bold print: “All across this nation there are millions who are choosing to work less because the incentive to do more is lower than they’re willing to accept.”
First, let me ask: do you have any actual hard evidence for this? Who are these people? I certainly do not know any. (Of course, as I know virtually no one, that doesn’t mean much!)
Second, I don’t think this is the problem you make it out to be. As you know, unemployment is high – much higher than official gov’t figures. I don’t know what it is, but I assume it’s somewhere closer to 20% than 10%. So the problem, clearly, is not that the harvest is great but the laborers are few; we’re *in general* not desperate for people to work harder, as so many people have no work at all!
Third, let me ask again: who might these people be? Not people who build things – blue collar manufacuring jobs don’t put you in the high, high tax brackets (generally), and anyway we don’t need more of those laborers, as so many are unemployed. And not farmers: we make tons of food. And not service industry people. And not inventors.
Are there some people, somewhere, who choose to do not take on extra work because the money isn’t “good enough”? Oh, I’m sure there are. But what do they do? And is what they do readily done by someone else? Suppose a lawyer decides not to take on an extra case because the money isn’t worth it. Is that a problem? Well, not obviously, as our society is literally drowning in lawyers. Or suppose it’s a financial guy on Wall Street. Is that a problem? Well, as the finance guys don’t invent anything, or make anything, or indeed contribute in any discernible way to making the world a better place, who cares?
Finally, you write: “What if every hour after 35 in a week was taxed less rather than more?” OK, I can perhaps agree with that. But that idea makes the most sense when people are compensated by the hour for their labor – and if that’s what you mean, then OK. That proposal will have no effect, though, on the professional class, which is paid a flat salary to get a job done, regardless of how many hours it takes to accomplish that job. (As our esteemed director of graduate studies in Theology, I’m sure you can relate!)
Thanks, Chris. You have a good point and I have updated my language about the issue to provide some background for the assertion you question. The people I’m talking about are business owners, a class of earners that seems to be demonized lately by the tax-hungry politicians of Washington. My conclusion is in great part drawn deductively from the business-related items I read regularly from around the country and occasionally from other nations as well.
Closer to home, I had a chance to speak with business owners who hosted their company Christmas parties at our restaurant (for their employees). I was amazed at the depth of anger, frustration, and disbelief among them concerning the damage being done to their businesses by the federal government. More than one expressed the sentiment that it will be difficult to survive another year.
Thanks John. Can you be more specific, though? Or give examples? What is it that business owners are NOT doing because they judge that the work won’t be worth the effort because of taxes? You cite business owners who express “the sentiment that it will be difficult to survive another year.” Well, OK – but I’m not seeing the connection between that and your claim that it’s not worth it to work because taxes are too high.
As you well know, taxes were HIGHER during the Clinton and Reagan years, and yet that didn’t really seem to stop people from making money or working hard. So I remain skeptical of your claim.
On another note, I would really appreciate hearing from the people you mention about what, SPECIFICALLY, the federal (or state, or local – whatever) government has done to make their lives harder. In other words, what SPECIFIC regulations or laws are making their businesses less profitable, and why? I’ve never heard a business owner actually identify something specific – it’s always the same, “the federal government is ruining the economy and that’s why we’re going out of business”. Honestly, that’s the refrain I hear over and over. To my mind, that’s just excuse-making. I want a specific cause-and-effect story. Until I hear one, I have grave doubts that the federal government is doing anything to hamper business. Now, if someone DOES have a detailed causal story, I’ll happily change my mind. I’d really love to hear details so that I can better understand.
Chris, I am personally convinced that the reason you don’t get my point in this blog post is the same reason we often don’t see eye to eye on these matters. As I replied to you a while back, your Keynesian preference is showing while my Austrian preference is showing. All you have to do is understand and accept the Austrian premise that taxation always comes at a cost (which it does) that usually outweighs the economic good it provides; read the long list of items in the news from companies that are cutting back, not expanding, and laying off due to the fact that the federal government sees business as the never-ending gravy train for its spending; and listen to business owners suffering in the poor economy which I and the Austrians believe was brought about by government seizure and waste of wealth. It’s that simple.
I do realize you think that business owners who complain about taxation are just griping, and it’s human nature to gripe. But our problem right now is deeper than that.
You want a specific example? How about the one you and I have discussed before, the example that comes from the business investment Patsy and I made in a rental property a few years ago. We worked out proverbial hind ends off to keep it solvent, make necessary repairs, get rid of druggies, clean up the neighborhood, and keep tenants. When we finally were able to sell it and make a few bucks the federal government swooped in and took a major portion of the proceeds because we had made a “windfall profit.”
Where are the specifics? Here they are: knowing what I know now about how much of my hard work the government thinks it is entitled to, I probably wouldn’t do that same thing again. In other words, I wouldn’t invest in a rental property with several units, I wouldn’t fix it up, I wouldn’t improve the neighborhood, and I wouldn’t bother with the effort because it’s unfair how much the IRS got out of the deal and how much they left Patsy and me.
Does government have to get a share? Yes. Taxation is necessary. In some sense it may even be considered a communal good. But in my book it was immoral what the federal government took from us: WE took the risk. WE signed the bank papers and trembled as we did so as we realized how difficult a project WE were undertaking. WE did the work. WE listened to tenants and spent our money to improve their lives. WE made the neighborhood safer. When WE finally made a few bucks, WE were taken to the cleaners.
Who are WE? WE are just small-business owners. And we are now much less likely than ever before to invest, to try, to bother, to give the effort because, honestly, we think we’d have to share too much of it with the eternal “silent partner” of big government. And when I see how much waste and fraud is involved in that government, I’m not only convinced of my position, but I’m also quite angry.
Maybe I’m wrong, but when I talk to others with similar stories I deduce that since Patsy and I are struggling small-business owners, others are as well.
John, Thanks for your lengthy and articulate reply. If you don’t mind, though, I’d like to press you further. The specific point under discussion is this claim you made: “I suspect that all across this nation there are millions who are choosing to work less because the incentive to do more is lower than they’re willing to accept.”
To begin, I should say that I’m sure that there are at least *some* people like this. After all, there are some people whose desire to work is very small indeed, and so they do the minimum to get by. Are there *millions* of them, though? That I doubt. But more importantly, we can ask: why is this a problem? In other words, why is it a bad thing that people are unincentivized (is that a word?) and so work less? I’ve read your blog post now several times carefully, and so far as I can see, you don’t have a sustained argument in response. Here is what you do say:
“Here’s the lesson, dear friends: taxation comes with a price. And not only that, but taxation is by its nature punitive and regressive. The more success you have, the more taxes you pay. For most of you, the more hours you put in and the more money you make, the more the government smiles as it banks on your determination and strenuous efforts. That hurts everybody. It cripples our economy.”
I agree that taxation has a price. I disagree that it’s *by its nature* punitive. Punitive, as you know, is related to punishing (for wrongdoing). But taxes are levied to fund government, not because you’ve done something bad. And yes, the more money you make, the more you pay in taxes, so long as taxes are a percentage of income. But none of this shows that people are *hurt* by it, nor that it cripples our economy. This isn’t my “Keynesian-ism” showing through, by the way. This is simply me pointing out that you haven’t established a certain conclusion by means of argument. (Unless you think that it’s just obviously true that people are hurt and that the economy is crippled. If that’s the case, then I wonder how you think the economy was faring in 1930. Was it “doubly crippled”, or something?)
In my earlier comments, I asked, “Who are these people?” My point, which I could have made more clearly, was that it matters who is being incentivized, viz the tax code, to work less. If it’s farmers, that’s bad news, because we need food. If it’s laborers, again, that’s generally bad news, because thing need to get made, or done, or what have you. As I said, though, these aren’t the people who are working less. Indeed, the problem is that there are too many people who want to work, not that we don’t have enough of them. Is it bad if *lawyers* are incentivized to work less? Again, I rather doubt it, as we have far too many lawyers in this country. In general, people choosing to work less because the extra money isn’t worth it hurts the country only if they would be making or doing things that we really need. But if it’s Stephanie Meyers deciding not to write another crappy novel (she gave us the terrible Twilight series)…well, I’m sure the literary world will survive.
So: are the people who are incentivized to work less harming the country – or you, or me – by not working? You said they were (small?) business owners. OK, this is promising: if a whole raft of business owners are just not expanding their businesses, or not hiring workers, because it’s simply not worth it, then yeah, I agree with you: this is problematic. Unfortunately, you’ve given me no evidence that this is indeed the case. Instead, you allude to lots of business owners who are struggling to make it because of – what? – the generally bad economy? That’s a problem, to be sure, but it’s *not* the problem that we’re discussing here.
This takes us to your example of the apartment complex. As you know, my heart goes out to you – you and Patsy suffered quite a lot through that ordeal. I have no idea how you did it. And it does suck that you lost so much to taxes. No disagreement there. But – and I really, really hate to say this, because I don’t for one second mean to belittle your efforts – if you had not owned that complex, someone else would have! Would they have been as kind as you and Patsy were? Almost assuredly not; I can think of few people who are as wonderful and kind-hearted as you. But someone would have owned it, which means that the example doesn’t support your point.
So, whether the current economic policies of the President (and the Congress) are bad or no – a point not under discussion here – I remain unconvinced that the disincentives created by the tax code are deeply problematic, as you would have it.
Thanks again, Chris. I agree with your assessment concerning the fact that I could have done a better job of follow-through on my thoughts about the consequences of punitive taxation. The majority of your most recent comment seems to be about logic rather than political differences.
I believe that taxation always affects incentive. How much it affects it is a contingent factor. Since we agree that taxation is necessary, then a certain amount of this is inevitable. But taxation is much more than funding the government these days, as you assert. If it were all about funding government then I would have fewer qualms about the issue. It’s no more about funding government that Jack Daniels is about helping an alcoholic uncle relax after a hard day’s work.
Government spending has become an immoral enterprise aimed at paying off particular constituencies. Barack Obama has been particularly adept at devising ways to use so-called “stimulus” to bolster his union support. In such a close election as we just saw, we can’t discount the possibility that this government spending diverted to his supporting constituencies had a decisive influence.
I’m not sure I have the space to convince you why UNincentivizing is bad. I grant that you have a point about salaried workers TO A POINT, but for the millions who produce the things we need in daily life, destroying incentive destroys the economy. Do I really have to convince you of this self-evident truth? Part of what’s wrong now with our economic plight is that people aren’t working!
Still, back to salaried persons. You seem to think it’s not a problem if an attorney loses incentive due to taxation and works less. But if she or he works MORE, then she or he needs more support staff. Many of those people are paid on an hourly basis. Yet if they are employed and their boss approaches them about working extra hours, they have to ask if it will affect their tax status.
And I assure you that they DO ask that. I bump into this all the time.
John, I agree with much of what you say here. Of course I agree with one of your fundamental points, which is that government is bloated and wasteful. I also agree that at least some government spending is “aimed at paying off particular constituencies.” Indeed, hasn’t that always been the case? Whether Obama has been particularly good at it or not, you probably know better than I. I don’t know that he’s mastered it anymore than many other politicians have. I’m also in complete agreement with this: “In such a close election as we just saw, we can’t discount the possibility that this government spending diverted to his supporting constituencies had a decisive influence.” Indeed, I don’t think it’s just a possibility; I’m sure that’s actually what happened.
Where you and I will likely disagree is about how to characterize that spending. You tend to describe it in terms of political payoffs or as motivated primarily by Obama’s desire to get reelected. (Thus your word “diverted”, above.) Liberals, and perhaps myself, would instead see the same government spending as motivated primarily by a desire to help the poor and those less well off. This is reasonable disagreement.
As to disincentives… I suppose that it is an empirical question whether it is true that, as you say, small business owners “are now much less likely than ever before to invest, to try, to bother, to give the effort because, honestly, we think we’d have to share too much of it with the eternal “silent partner” of big government.” If that is true, then I agree with you: there is a real problem.
Let me close with just two points, which I’ve made before, but to which I cannot recall ever hearing a good reply. (1) If I’m understanding you correctly, part of your analysis is that taxes are too high (of course you are also concerned with wasteful government spending), and that this is harming the economy. As many people have pointed out, though, taxes are actually at historical LOWS. They were much higher under both Reagan and Clinton, and the economy was doing just fine. (2) It is also often pointed out that corporate profits are currently quite high, and the stock market itself is doing just fine. It’s fully recovered from the drop in 2008.
Together, these two facts suggest that the problem is NOT high taxes.
Chris, it seems we’re getting somewhere in our respectful argumentation! We are better understanding where we agree and disagree. (At least you haven’t written off my comments as manure in the manner in which one of our beloved colleagues recently did on Facebook!)
Here’s a quick reply to the two points at the end of your most recent commentary:
(1) I’m not arguing that taxes are too high in a comparative sense, but that they are too high in a moral and practical sense. Morally, because of the use to which they are being put and practically, because they are too high given the economic situation of the nation and because they bring a cost to the economy that few understand or can adequately enunciate (that’s my preference for the Austrian school of economics). In this I would prefer to see a massive cutback in the size and power of the federal government (here AND abroad–you’ll especially like that last part), along with a curtailing of overall federal taxes and institution of a reasonable flat tax.
As for your assertion about Reagan and tax rates, there are some very important caveats to keep in mind:
http://www.politifact.com/truth-o-meter/statements/2010/sep/22/barack-obama/barack-obama-says-taxes-are-lower-today-under-reag/
Concerning where Obama wants taxes to be as compared to Clinton, this is interesting:
http://www.atr.org/president-obama-want-clinton-era-tax-a7349
(2) Your point about corporate profits and the market can stand on its own. I won’t argue for or against it, but I accept that it appears accurate. My primary argument all along hasn’t been about the comfort of the ultra-wealthy or the ability of large, powerful corporations to make profits. It has been about small businesses. Why? Because I’m one of them, and small-business employers (according to the SBA) represent 99.7% of all employer firms:
http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24
ha! No, I certainly haven’t written off your comments – on the contrary, I think we ARE making progress. This is helpful. Thanks for the the links above – I will now go read them and reflect! 🙂
Lets look at it from another direction. Someone who is in that tax bracket has to earn 20.00 to spend 10.00. Many who are in that tax bracket are within 5 years of retirement, and have not always earned this kind of money. But most importantly why does the government get to decide who deserves this money, Why can’t we go back to charity, and have a little better return on the dollar. The overhead the government has for being charitable, would give it a terrible rating among the charities. And in regards to a group of people who are considering slowing down their work week, my daughter gets a free magazine with many adds advertizing 4 day work weeks, for people with her qualifications. Chris may say,”who cares”. Well as long as you stay healthy you won’t care. What group of people is talking about slowing down their work week? The people who we are least able to live without!
Here is a great piece from Ludwig von Mises on the negative realities of so-called “progressive taxation.” It comes from his book, HUMAN ACTION.
http://mises.org/humanaction/chap32sec3.asp
Oh my goodness. I just read this article. Wow. When was he writing? This is just unbelievably terrible! Honestly – and I’m not kidding here – his arguments remind me of those made by undergraduates, not by leading intellectuals. Let me take but one example. LvM dismissively writes: “The lofty moralist conceals his resentment in philosophical disquisitions. He argues that a man who owns ten millions cannot be made happier by an increment of ninety millions more.”
Actually…there’s terrific empirical research that shows this is pretty much correct. To be fair, LvM died around 1970, and the research with which I’m familiar has been done since then. So he didn’t have access to it. But still, LvM means to dismiss reasoning that is, in fact, largely correct. But this minor quibble aside, there are deeper problems. He writes:
“To judge in this way means to judge from an individualistic point of view. The yardstick applied is the supposed sentiments of individuals. Yet the problems involved are social problems; they must be appraised with regard to their social consequences. What matters is neither the happiness of any Croesus nor his personal merits or demerits; it is society and the productivity of human effort.”
I’m not entirely sure just *what* he means by “what matters….is society and the productivity of human effort.” But whatever he means, this much is true: society is composed of individuals, and so if you care about society, then what you should care about is precisely those individuals and whether they are happy. If he means that we should care, ultimately, about how taxation affects human productivity, then I think he’s simply and utterly wrong about that. In fact, he’s got things exactly backwards. Human productivity is not what’s ultimately valuable; PEOPLE are ultimately valuable. Human productivity, and the success of businesses and whatever else, matter only to the extent that they make people flourish. LvM seems to be fundamentally mistaken about where intrinsic value lies.
I’m trying to think of a more charitable interpretation of his words, but I honestly can’t find one. If I were being uncharitable, though, I would say that he’s attempting to produce a moral argument against the use of moral arguments – which, of course, is self-defeating.
There are other problems, too. For example, he argues, concerning death taxes: “They force the heirs to sell a considerable part of the testator’s estate. This capital [p. 808] is, of course, not destroyed; it merely changes ownership. But the savings of the purchasers, which are spent for the acquisition of the capital sold by the heirs, would have constituted a net increment in capital available. Thus the accumulation of new capital is slowed down. The realization of technological improvement is impaired; the quota of capital invested per worker employed is reduced; a check is placed upon the rise in the marginal productivity of labor and upon the concomitant rise in real wage rates.”
I honestly have no idea how this argument is supposed to work at all. Anyone care to enlighten me?
Just a couple of ideas for now.
Problems with entitlements? OK, I suggest we end “corporate welfare” immediately and halve the Military-Intelligence budget IMMEDIATELY. Then, we shift to a simple 10% tax on EVERYONE, regardless of individual, company, corporation, etc. status (with no loopholes or exemptions)…and, as a “direct tax,” it must be constitutional…i.e., by apportionment. Studies have suggested that we’d have a nice surplus..for any legit. budget items, such as education, assisting folks who are at risk with a job or home loss, and running the day-to-day business of gov’t. And, there’d be little need for enforcement, as it would not be worth the hassle to cheat, when the Average Joe would be paying about a third of his/her usual. We could fire thousands of IRS dead-beats who typically terrorize blue-collar workers, and insist they get “real jobs.” Of course, we’d have to beef up Dept. of Justice agents, to prosecute the Big Guys who routinely play the system and salt away billions in off-shore accounts, and we’d obviously need to fully restore Glass-Steagall protections (and robustly prosecute the financial criminality we have witnessed over the last ten years).
BTW, the “Fiscal Cliff” is right up there with the Good Tooth Fairy, the Emperor’s New Clothes, and a “fire-sale” on the Brooklyn bridge. It don’t exist!!
Thanks for your comments, “drtch.” If you’ve read many of my blog entries, you may know that I am a proponent of a flat tax. The current system has become a system of rewards and punishments depending upon the preferences of those in power. Some of your ideas for tax reform sound reasonable.
What I’m not sure of, however, is your mention of entitlements. Neither I nor anyone else in this particular post or comment thread has mentioned that topic that I can see. Correct me if I’m wrong.
As for the “fiscal cliff,” that term is loaded with all sorts of ambiguities and is more of a scare tactic being used by politicians of both stripes at the moment. My major problem with it is the same one I have for most of what’s going on in DC. Politicians want to divide us into economic strata to use us for their own benefit. They can argue all day about how much the rich should pay but the fact is that we are ALL going to pay for the spending spree in DC over the last decade (Republican and Democrat administrations included).
And, as I try to suggest above, it didn’t have to be this way. Spending is just a tool for courting votes these days and I resent the notion of sending one single cent more to DC for ANYTHING.
Here is some evidence for Chris – researchers at the Minneapolis Fed have concluded that Americans work 50% more than Europeans because of the higher tax burden in Europe. Other academics have found similar effects.
John, I’m Lutheran and enjoyed reading the quote. I have been unable to find it stated exactly that way. Can you post a link to the source. I would like to use it in some of my writing.
Bill, I’ll get that reference for you. In the meantime, would you look at your first comment and see if it’s written the way you intended? Thanks. If it needs editing, let me know.
I agree it reads awkwardly. I’m recalling the statistics from memory. I suppose one could say Europeans work 33% less than Americans because the tax rates in Europe are higher. I can find the link if anyone is interested in reading the research.
Okay, I decided not to be lazy and find the links that I had in mind. I had to get off my ipad and onto my laptop to do it. Here is an excerpt from the Minneapolis Fed and the link :
“European Vacation: Why Americans Work More Than Europeans
Taxes, not culture, account for the difference, according to economist Ed Prescott.”
Link
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3346
Here is another research study By Davis and Henrekson at the National Bureau of Economic Research.
TAX EFFECTS ON WORK ACTIVITY, INDUSTRY MIX AND SHADOW ECONOMY SIZE: EVIDENCE FROM RICH-COUNTRY COMPARISONS
Excerpt:
“In summary terms, the data tell this story: Higher tax rates on labor income and consumption expenditures lead to less worktime in the market sector, more work time in the household sector, a bigger underground economy, and smaller value added and employment shares in industries that rely heavily on low wage, low skill labor inputs.”
Link
Click to access 20050112_StevenDavisNBER.pdf
Thanks, William. I suspected that such things were in play, but I’m delighted to see the studies.
William, here is the reference for the quotation from Luther. It’s all I have, but it should be good. It comes from a reference librarian who is very knowledgeable about theology and who is also a Lutheran!
Luther’s Large Catechism: A Contemporary Translation with Study Questions. p. 62. St. Louis: Concordia Publishing House, 1978.
John, don’t feel obligated to post this message in whole or part on your site.
As I have noted I am a new follower. I have read only a small share of the archive and find that I agree with most (not all) of it. At the risk of being presumptuous, I am going to offer some information with hope that you will find it interesting and include it in your future commentaries. By the way, I think you should seek a way to draw more readers. I don’t have a recommendation on how to do this, but many would benefit from your perspective.
I am keenly interested in many of the topics on which you comment, but find your moral and spiritual perspective a refreshingly different angle. A little about my background – In my work, I help people manage their finances so that they can take care of their families, send kids to school, and provide for their retirement, etc. While I am well educated in economic theory, I spend vast amounts of time consuming empirical research and following current economic data, because to be successful I have to understand how economics is working in actual practice. I am part of the baby boom. I believe that the most significant threat to the US economy is the growing federal debt, and I believe the legacy of debt that the baby boom is leaving to following generations is shameful. I wish college students understood this better. Perhaps as a college professor you can help them understand how they are being exploited. Politically, I would characterize myself as a weak-form libertarian, to coin a phrase – I place high value on individual freedom and responsibility. Where I depart from strong-form libertarianism is where to draw the lines on things like social goods, protection of the vulnerable, national defense. Lastly, I find that when people disagree it is usually due to differences in: 1) values, or 2) knowledge or perception of facts. I find it difficult to change people’s values. I try to help by improving understanding of facts. Sorry for the lengthy introduction.
Here is some food for thought:
Eugene Steuerle is an economist at the left leaning Urban Institute and has done good analysis in my opinion on a number of issues. Though I may at times disagree with his politics, he does honest analysis. He recently gave testimony to Congress on entitlement plans and the disincentives they create. I thought you might be particularly interested in the disincentive to marriage. Here is an excerpt:
“Someone looking at our system from Mars would conclude that we don’t want moderate income families with children to marry, since we penalize them, but we do want older households (at ages when children are likely to be gone) to marry, since we subsidize them.
Games Encouraged by Means Testing. One thing we have learned in public finance is that taxes have significant effects on portfolio behavior even if there is less certain effect on work and saving. Not getting married is the major tax shelter for low- and moderate-income households with children. In many low-income communities around the nation, marriage is now the exception rather than the rule.
Marriage penalties or subsidies are assessed primarily for taking wedding vows, not for living together with another adult. Those who do not feel morally compelled to swear fidelity in religious or public ceremonies for the most part do not suffer the penalties. Our tax and welfare system thus favors those who consider marriage an option—to be avoided when there are penalties and engaged when there are bonuses. The losers tend to be those who consider marriage vows to be sacred.”
You can read the whole report here: http://www.taxpolicycenter.org/UploadedPDF/901508-Marginal-Tax-Rates-Work-and-the-Nations-Real-Tax-System.pdf
Entitlements
Many if not most people think they have paid for their Social Security and Medicare benefits, and politicians of all stripes seem more frequently inclined to perpetuate that misunderstanding than to tell the truth. Steuerle has compared the value of Social Security and Medicare benefits to the taxes paid for them by various household types over the years. He found that no group paid enough to cover their combined Social Security and Medicare benefits. The gap for Social Security benefits was smaller, with some groups actually paying in more than what they’ll get back. But none paid even half the value of their Medicare benefits. Here is the 2011 report with which I am most familiar:
Click to access social-security-medicare-benefits-over-lifetime.pdf
Here is the 2012 update, which I just discovered and have not compared closely, but I think the situation has gotten worse. This is why I am ashamed of my generation.
Click to access 412660-Social-Security-and-Medicare-Taxes-and-Benefits-Over-a-Lifetime.pdf
Tax Fairness
How about some truth on who bears the tax burden, amongst all of the divisive rhetoric for the “rich” to pay their fair share? The Congressional Budget Office prepares a periodic analysis on this (there may be an updated report).
Click to access 43373-06-11-householdIncomeandFedTaxes.pdf
That’s it for today.
Bill, thank you. I plan to study this. You didn’t say I couldn’t post it, so I did. I hope that’s acceptable. I believe others need to read your comments. As for garnering a wider readership, you and I are on the same page and I’m working on ideas for that now!