HERE’S the bottom line: Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?I'd like to personally thank Greg for this eloquent explanation of the Laffer curve. I'm sure it's included in once of his excellent textbooks, although this article was certainly more memorable. My issue is with his last thought, though:
Now you might not care if I supply less of my services to the marketplace — although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.Yes, maybe. But Greg is making the assumption that if he doesn't provide his services, someone else wouldn't step-in to fill in the gaps. I'd see this argument being valid when we are close to full employment levels, but the unemployment rate amongst individuals, even if lower than the less educated, is still elevated.
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. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.
|Image source: Calculated Risk|
As a final nitpick, that 90% estimate is kind-of a worst-case scenario. If Greg's concern is really how much taxes are going to reduce what he finally leaves his children and grandchildren, he should look into estate-planning and all of the opportunities there is to distribute accumulated wealth to heirs over time to reduce the tax-impact, whether it is tax-exempt gift allowances, 529 Plans, or other of the products that are available for these purposes. If you are interested in any of those services, Greg, please feel free to leave a comment and I will make sure to put you in touch with some financial professionals that are both highly-qualified and very much willing to work.