Is there no refuge for intellectual honesty? About a week ago, a well known professor of Economics at Harvard University named Gregory Mankiw wrote a short piece for the New York Times (which was then picked up by Yahoo) called “I can afford higher taxes, but they’ll make me work less.” The article pretended to shed some light on the “debate” over whether the Bush tax cuts on the highest income levels should be extended by providing a “case study” on the effect of higher taxes on high earners. The clear implication of the article is that if the Bush tax cuts are not extended for the upper income levels, it will have a negative effect on economic activity. Because the article was written by a high profile professor of Economics from Harvard and printed in the New York Times, one would think that the article had something important to say.
Are you ready for this? Here is the gist of Professor Mankiw’s insight: if he never had to pay taxes, and if the corporations he invested in never had to pay taxes, he would have a lot more money. Seriously, that’s it. Apparently that’s the wisdom that a Ph.D. in economics imparts.
That might be the end of the story (and not worth my writing about) if Mankiw were not so underhanded about the whole business and if he had not connected his insight to the issue of the Bush tax cuts. As it turns out, the only case study that the article presents is one in disingenuousness, intellectual dishonesty, distraction and double talk.
Mankiw begins by suggesting that looking at how higher income taxes would affect him (an acknowledged high earner) might “shed some light on the broader policy issues.” Actually, that is not true and Mankiw knows it. The broader policy issues that the government considers in how to impose taxation include many things, such as fairness, practicality and impact on economic activity. The government does not (at least should not) consider how its tax policy will affect a particular individual. And while the government might consider how its policy affects a particular class of individuals, Mankiw’s situation is so atypical (a college professor that has earned millions of dollars in textbook royalties) that examining his own personal situation would be worthless for formulating tax policy.
But let’s put that aside and work with Mankiw’s premise. He says that since he already has enough money to live the way he wants to live, he does not take on extra work because, after taxes, it won’t significantly add to the inheritance of his children. Huh? Are we seriously supposed to formulate our tax policy based on the whims of those who already have all the money they need and want? Are we supposed to lower taxes on the wealthy in order to increase the inheritance of their children?
In fairness to Mankiw, he is not expecting a gift from taxpayers for his children. He is willing to work for the money, but apparently only if we agree not to tax his income at all. Otherwise, Mankiw warns us, we as a society will lose the incalculable benefit of his labor. Ok, he does not say it exactly that way, that’s my sarcasm, but he seriously suggests that we will have trouble finding highly trained surgeons, orthodontists, movie actors and singers because “as they face higher taxes, their services will be in shorter supply.” (He actually cites a study to support the latter statement. I’ll deal with that study below).
Mankiw is both wrong and dishonest. He is wrong because this is a market society. The market price for surgeons, dentists, actors, etc., will always adjust to a level sufficient to ensure the necessary supply. In the example Mankiw uses to illustrate his point, he is offered $1,000 to write an article, but he declines because, although he saves and invests the entire (after tax) fee, after thirty years the amount that his children would actually inherit would likely be only $1,000. The point that Mankiw misses is that the article will still be written, just not by him. It will be written by somebody else who is motivated by the money to do the work. And while it won’t be an article written by Mankiw, that is not because of taxes but because the market does not value Mankiw authored articles enough to pay him more.
It is rather stunning that a Harvard professor, one who writes textbooks, would present such a bone headed and simplistic view of things. That’s where the dishonesty comes in. It’s not just that Mankiw surely knows better, but he provides all sorts of irrelevant calculations and erroneous assumptions to make his deception seem all the more authentic. For example, although he states that his goal is to help us understand the consequences of allowing the Bush tax cuts to expire, he compares what he would pay if the tax cuts were not renewed with paying no taxes at all! But that’s not the debate. Nobody is talking about eliminating all taxes. Furthermore, Mankiw never explains his comparison, and a casual reader might easily believe that ending the Bush tax cuts would account for the $9,000 difference the Mankiw calculates.
In reality, Mankiw would pay a whopping $49 dollars in additional taxes on his hypothetical $1,000 in income. Not much of a story there. I think the real story is that the burden imposed by not extending the Bush tax cuts is so minuscule is that the only way to argue against it is by using the kind of deceit and deception such as that presented by Mankiw. It’s disappointing that the Harvard affiliation means so little, and even more disappointing that the New York Times would print such a shoddy piece of propaganda. And since we know that Mankiw is not willing to work for $1,000, it makes me wonder how much the Times had to pay for the privilege.
About that study that Mankiw cited. It concluded that as tax rates go up, high income individuals show less income because more of their income is from investments, which are more amenable to manipulation for tax purposes. In other words, the study did not conclude that high income people work less, as Mankiw implied.
Mankiw’s article can be found here.
The study he cited can be found here.