N. Gregory Mankiw, who chaired the Council of Economic Advisers from 2003-2005, now teaches at Harvard and writes a column for the New York Times. His recent piece, “I Can Afford Higher Taxes. But They’ll Make Me Work Less,” evoked Ayn Rand and provoked liberals. As one of the provoked, I’m here to mess with Mankiw.
Several criticisms were quickly leveled, including a charge by political blogger, Kevin Drum, that Mankiw fudged some figures. He did, but that’s not what bothered me.
Whining. Omissions, serious and curious. Threats. Let’s look at those.
“I Can Afford Higher Taxes” whines about taxes Mankiw has yet to pay and, in the major case, won’t ever pay. It whines about a 2013 bump in the Medicare tax. About a 2011 deduction phaseout that will add “1.2 percentage points to my effective marginal rate.” It whines that the estate tax, lying in wait, will sabotage a father’s efforts “to put some money aside for my three children.”
Whining doesn’t become a Harvard professor who tells us, admirably, “I could go so far as to say I am almost completely sated.” Sated, but whining away.
Mankiw’s numbers on the estate tax omit a number which would likely shield any legacy he manages to scrape together: an exclusion of $3.5 million per person, or $7 million per couple. Congress has to agree on an amount, but there’s almost no way it will be less. So, unless Mankiw is even more affluent than he admits, none of the Mankiws will ever pay a dime in federal “death taxes”. (Drum also caught this omission.)
With his focus on marginal rates, Mankiw also avoids the rate that really matters, the effective tax rate. The billionaire Warren Buffett aimed the spotlight where it belongs when he confessed, shame-facedly, to paying “far, far less as a fraction of his income than the secretaries or the clerks of anyone else in his office.” Might the same be true of Mankiw and the secretaries at Harvard? You’ll never get that from him; he’s called the 2003 tax cuts on capital gains and corporate dividends “an important accomplishment.” For sure: taxing Wall Street income at a lower rate than wages is the major reason why effective tax rates on the super-rich are often super-low.
“I Can Afford Higher Taxes” plainly means to threaten us. The well-off, Mankiw infers, will withhold their services once they reach the point where the top marginal rate kicks in (and they’ve exhausted all their tax breaks, about which more later). Listen to the menace in Mankiw’s summation: “…[S]omeday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist.” And the local orthodontist and the highly trained surgeon will show you the door, or never open it. Don’t say you weren’t warned.
Now for a fast lesson on tax breaks.
Mankiw’s personal blog noted that “I Can Afford Higher Taxes” struck a nerve. Here’s his response to one frequent question:
“Aren’t there ways to avoid some of these taxes, such as IRAs and life insurance trusts? Yes, and I use such tax avoidance mechanisms to the extent they are legal and practical. But there are limits to how much they can be used. Thus, while they lower my average tax rate, they do not affect my marginal tax rate. That is, for any incremental income, I cannot do more, so I am facing the full tax bite.”
Here’s a man who pores over the tax break buffet, takes what he can, and would gladly take more if he weren’t legally stuffed.
We might keep Mankiw from whining by dreaming up more tax breaks. Or he might hire a more creative tax accountant, and fudge numbers in some place other than The New York Times.