Boy did Greg Mankiw set off a firestorm with his latest column. In The New York Times, the Harvard economist and former policymaker took on the issue of the Bush tax cuts for those making over $250,000, which Democrats seem quite ready to let expire. He takes himself as an example (which one would think, after the last brouhaha, would have gone out of style). "First," he says, "I have to acknowledge that the Democrats are right about one thing: I can afford to pay more in taxes." But although he could live comfortably with a tax hike, he says he might work less. Right now, he occasionally takes on extra work in order to be able to pass money on to his children. With no taxes he might write a column for $1,000, invest it, and in thirty years be able to bequeathe $10,000. With taxes, including those paid by whatever corporation he invests in, those on his original income, and then the estate tax, "that writing assignment would yield my kids about $2,000." So here's his argument, extended to things he suggests readers might care about:
Maybe you are looking forward to a particular actor's next movie or a particular novelist's next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. ... Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don't let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden.
And with that, the debate took off.
- Predicting Liberals Won't Be Convinced "I have found," muses Reason's Brian Doherty, "that these sort of arguments have absolutely no impact on most people who want to soak the rich to help the state, but there it is, and it [Mankiw's argument] seems true." Reihan Salam at National Review likewise agrees with Mankiw's column, and also points out that tax dollars are often wasted anyway--raising taxes isn't the first thing we should try to fix our budget problems.
- A Rhetorical Slight of Hand "Do you see the card he palmed?" asks Mother Jones's Kevin Drum. "Basically, the effect of letting the Bush cuts expire is so tiny that the only way to make it noticeable is to compound it over 30 years," assume he's paying the "full statutory rate, which virtually no one does," and add on the estate tax. Drum adds that he's not sure "any actual human beings" are "motivated solely" by leaving money for their kids and see 30-year-long incentives the same way as immediate ones.
- True, But Marginal Tax Rates Can Also Be Seen as Morally Wrong, argues Tyler Cowen, who also admits that one response to Mankiw might be that "in reality, eveyrone has a short time horizon, driven by short-term ego rewards and thus such high long-term tax rates can work."
- Should Mankiw Be Saving for His Kids Anyway? American Prospect's Tim Fernholz notes that, at the time of Mankiw's passing, his children are likely to be at least thirty. "Should people be working simply to leave their adult children as large a sum of money as possible?" He reminds readers of "the American ideal of hard work leading to material success," and argues that while "conservatives laud responsibility and work ethic, their policies aren't designed to preserve it." If Mankiw favors "the lowest possible barriers to leaving wealth for your children after death," he's favoring a long-term track towards "aristocracy and indolence." Ezra Klein makes a similar point.
- Taxes Don't Actually Stifle Artists' Creativity "There may be good reasons to extend the Bush tax cuts," acknowledges Edward Tenner at The Atlantic, "but cherishing the nation's creative fire isn't one of them." For starters, he says, "Sweden's notoriously high taxes also haven't reduced literary output, as Professor Mankiw's column suggests they would." Also, "taxes didn't seem to curtail the concert or recording schedules of such 'favorite singers' as Elvis and Bob Dylan."
- And If They Did, There Would Be Something Wrong Brad DeLong argues that if Mankiw is really only writing columns for that $1,000 to put away for his kids, we're in trouble (and, though DeLong doesn't point this out explicitly, the same logic could be applied to the nation's novelists, artists, and musicians):
If people write columns not because they are driven to inform and educate their readers but rather because it is a way to make money to leave to their children--well, then those columns will be written not to inform but to entertain ... I do not think society can survive if the voices writing on political-economic issues in our public sphere are doing so not to inform but merely to entertain. ... Indeed, I don't think America can long survive if we treat our contracts with newspapers merely as ones in which we craft words and they pay us money, and in which we craft our words to make as much money as we can.
- It's Not All About Money, agrees economist Mark Thoma. "As Greg Mankiw makes clear every chance he gets, he's at Harvard. That tells me that the return to his ego is every bit as important as the financial return. I'd further guess that even if the New York Times stopped paying him for his column, he'd write it anyway."
- Is Mankiw Saying He'll Quit His Column If Taxes Are Raised? Mankiw really shouldn't have given his opponents this opening. "Who thought that the policies I already favor could have such salutary side benefits?" snorts Scott Lemieux of Lawyers, Guns and Money, complaining of Mankiw's "transparently illogical op-eds." mistermix suggests immediately raising the economist's taxes to 91%, while taking issue with one of Mankiw's assumptions: "If a company is actually paying 35% in tax, then they're run by idiots and Mankiw shouldn't expect to get a 5.2% yield--he should expect to lose his investment." Adds Marcy Wheeler:
I've seen no more compelling, succinct argument for why we should raise taxes. Not only will it result in more money flowing through the economy immediately, but itll save us from having to read the ramblings of rich people like Mankiw, David Broder, and Tom Friedman.
- Mankiw Just Illustrated the Shortcomings of Economics Though Ryan Avent agrees with the economist's economic reasoning, he points out that it "for better or worse, people care about fairness and they work for reasons other than money. And one of the biggest shortcomings of economics, I think, is the extent to which the field struggles to incorporate such realities into its models."