Higher Taxes Mean Less Work
Oct 11, 2010 5:15 PM EDT
This week at FOX Business we're looking at ways the government burns through your money--money you work long and hard to earn--only to give a large amount back to Uncle Sam.
Add to that, we are only about 81 days away from what could be the largest tax hike in U.S. history.
Former adviser to President George W. Bush, who's now an economics professor at Harvard, outlined exactly why everyone... yes everyone... will be impacted if only the tax cuts for the rich are allowed to expire.
On an op-ed in the New York Times, Gregory Mankiw starts in the middle of the argument making a rational acknowledgment: "The Democrats are right about one thing: I can afford to pay more in taxes."
He's not playing the "woe is me card, " the "I'm rich, but not really rich card."
Mankiw says more taxes would just mean he'd work less.
In an example he gave he showed why:
If he was offered $1,000 to write an article - without taxes at all - he would get a $1,000. And if he invested it at 8% interest he would end up with $10,000 in 30 years.
But then again, that world doesn't exist.
In reality, if the tax cuts expire, he would pay more than 39% in taxes, nearly 4% in Medicare tax thanks to Obamacare and more than 5% in state income taxes which equals $523.
As far as investing it, the corporation whose stock he chose would have to pay 35% tax, so he would only make a little more than 5%. So over 10 years that money would only grow to about $1,700.
But wait there's more!
Once he leaves his children that money in his will, they'll get hit by a 55% estate tax. So instead of $10,000, his kids would get less than $1,000. So why bother in the first place!
And he's not alone - a study by the an economist at Arizona State University found a 10% increase in taxes led to a 10 to 15% decrease in work hours.--especially if those workers felt their money was going to transfer programs like Social Security or welfare.
As Mankiw points out, some of these people being less incentivized to work may include surgeons or lawyers or people vital to your day to day life.
So just because you don't make $250,000 you too will find your life altered-- and not in a good way-- if it's just the "so-called" rich bear the burden!