Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”     Winston Churchill

March 3, 2009

Atlas Is Bluffing About Shrugging

by Brad Warbiany

Obama’s trying to raise taxes on those making over $250,000 a year, and the people in that group [well, enough for an anecdotal news story, anyway] say they won’t stand for it:

President Barack Obama’s tax proposal – which promises to increase taxes for those families with incomes of $250,000 or more — has some Americans brainstorming ways to decrease their pay, even if it’s just by a dollar.

A 63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law.

So far, Obama’s tax plan is being looked at skeptically by both Democrats and Republicans and therefore may not pass at all.

“We are going to try to figure out how to make our income $249,999.00,” she said.

“We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama’s tax plan,” she added. “Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”

My co-contributor Doug at his personal blog, Below The Beltway, and Bruce McQuain of QandO quote approvingly, and with the obligatory libertarian allusions to Atlas Shrugged.

But I don’t buy it. First, there’s the point in the article that this is a matter of marginal taxation. If the top marginal rate is raised from 35% to 39.6%, that doesn’t mean that someone making $250,001 will pay 4.6% more in income taxes than someone making $249,999. It means that they will pay 4.6% more on any dollar earned above $250K.

This isn’t a huge increase. Is it really believed than high-income workers will stop trying to increase their income from $300K/year to $400K/year if it means the government will take an extra $4600 on top of the $35K they’re already taking? I don’t think so. The difference in tax rates isn’t quite to “walk away” territory yet.

Granted, this shouldn’t be taken as a suggestion that I support these tax increases. I think the idea that the government should take 35% of someones marginal income at higher levels is absolutely sickening, and it’s slightly more sickening to think that they’d take 39.6% of that income. But in the grand scheme of things, I don’t think it’s going to make that big of a difference, and I think those interviewed for this article are probably not going to make much of a change either. Yes, if their incomes are currently in the $250-265K range, they might change something (particularly if the suggestion of reducing the value of itemized deductions is enacted). But if they’re making $350K/year, I don’t think it’ll make much of a difference in their behavior at all.

This is bad policy, but let’s not be melodramatic about it.

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7 Comments

  1. Brad,

    I see your point, but I think it comes to a matter of opportunity cost and what impact the increased tax rates have on the decisions people make.

    If it costs some X amount of hours to earn an additional, say $ 100,000 over $ 250k, and the government is going to take an additional $ 4000-$5000 dollars of that income is it worth their time to work the additional hours only to see more money go to the state ? Maybe they’d rather take the time off and golf, or go on vacation.

    That’s a loss to the economy right there, no ?

    Comment by Doug Mataconis — March 3, 2009 @ 12:39 pm
  2. Doug,

    I’m not going to say that at the very margins, it won’t make a difference.

    But they’re already working those extra hours to turn over $35K of that $100K to the government. Do you really think the increase to $39.6K will make that much of a difference?

    I can tell you one thing — everyone I know who makes that kind of money hates the taxes, but they’re too wrapped up in working their ass off for themselves and their family to be slowed by this small of a change.

    They’re typically like Hank Rearden before he quits — they are Atlas holding everything up because they simply can’t imagine doing differently. Someday they may withdraw, but I don’t think 39.6% is going to be that day — especially since they were taxed at that level throughout the 90′s without massive levels of executives walking away from their boardrooms.

    Comment by Brad Warbiany — March 3, 2009 @ 12:58 pm
  3. Brad,

    It’s also important to note, I think, that Obama’s tax plan is about more than raising rates on those with incomes about $ 250k.

    It would also substantially cut back on their ability to take deductions. Which means that their total taxable income will be higher. Which means that their total tax owed will be higher.

    Comment by Doug Mataconis — March 3, 2009 @ 2:06 pm
  4. I agree with your viewpoint Brian. It is criminal yes, but I doubt it would be enough to make Atlas shrug. If it were me, I certainly would still be trying to build my wealth, regardless.

    Comment by Greg — March 4, 2009 @ 4:34 am
  5. Well, shrugging isn’t the only action to take. They could use the extra time to be sponsors and community activists for tea party protests. Starting a new political party of non-religious capitalists would be a great achievement! As the sales of Atlas Shrugged increase and people pull out old copies to re-read what Ayn Rand wrote 52 years ago, it is hard to predict the consequences.

    Comment by JackDoitCrawford — March 4, 2009 @ 6:30 am
  6. In the 1960s, tax rates on the wealthy were in the 90%+ range. John F. Kennedy cut the highest tax rate down to something in the mid 70% range. We have a long way to go to reach taxation levels that the richest Americans tolerated a mere 50 years ago.

    However, Americans at all income levels have enjoyed much, much lower tax rates for many decades now. Most have no memory of the higher rates that our grandparents paid. What is the high point that will cause them to revolt? The newly born Tea Party movement indicates a much lower tolerance for high taxes than an earlier post-WWII generation accepted.

    That said, the steady increase in tax rates, even in small increments, should be resisted. Michael LaPrairie, at Wizbang today, discusses the hazard of accepting a little bit more:
    “‘A little more.’ It’s always just a little more. We could make such a big difference with just a little more. Problem is, the Federal government takes a little more of your income, then the state wants a little more, then the city wants a little more, then Social Security takes a little more, then property taxes are raised a little more, then sales taxes are raised a little more, then taxes on dividends and capital gains are raised a little more … and pretty soon we are all paying a lot more.”
    http://wizbangblog.com/content/2009/03/07/in-new-york-a-different-kind-of-tax-protest-1.php

    As LaPrairie says, “and pretty soon we are all paying a lot more.” We could be on the way (at low speed to begin with) to extremely high tax rates once again. Remember that Obama’s dear old dad was a Kenyan economist who advocated tax rates of 100%. I bet Obama thinks that sounds just about right.

    Comment by pa — March 7, 2009 @ 9:26 am
  7. [...] now, a few regular readers have seen my post from last week, and many thousands have seen Stephen Gordon’s compilation of “Going Galt” [...]

    Pingback by The Liberty Papers »Blog Archive » How To Shrug — A Legal Tax Protest That Might Make A Difference — March 9, 2009 @ 9:57 pm

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