Ken Nelson

Belmont Club links to Harvard’s Greg Mankiw’s depressing comparison of McCain and Obama’s tax plans on one additional dollar of income (extra work). Mankiw sets it up this way:

If there were no taxes, so t1=t2=t3=t4=0, then $1 earned today would yield my kids $28. That is simply the miracle of compounding.

Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, a dollar earned today yields my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83 percent compared to the situation without taxes.

Under the Obama plan, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, a dollar earned today yields my kids $1.85. That is, Obama’s proposed tax hikes reduce my incentive to work by 62 percent compared to the McCain plan and by 93 percent compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93 percent.

The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids. They will be poorer when they grow up, but perhaps they will have a few more happy memories.

So what would be $28 dollars becomes $4.81 under McCain and $1.85 under Obama. Nasty. Why bother?

This is the exact calculation I made to retire from my photography side business. It was doing very well. I could accept as many bookings as I wanted to fill my calendar. One year I did over 30 weddings. At $2,500 average a wedding, that isn’t a small sum of extra $. BUT after all the other hands dipped in – and especially that every one of those dollars was taxed at the highest marginal rates, it just wasn’t worth the lost weekends. So, instead of $30K in tax revenue this year, the government will get none, and I will get my weekends back.

The long and short of it is that, courtesy my software company, I’m pretty well off by most folks standards. My largest expense is taxes, by far. I believe much of what is taken from me is wasted. And I’m pretty pissed about that. I would be retired now if it weren’t for this theft. It irritates me that years of my life are stolen so that politicians can have careers.

And for Obama and his ilk to think I’m not “giving enough” pisses me further.

If they are elected, I’ll just retreat more. I’ll try less hard at work. I’ll employ less people. I’ll structure my activities for legal tax avoidance, not productive operations. I have no choice.

Unfortunately, the math is different for over 50% of America. Fernandez astutely points out those receiving tax $ instead of paying them might view this equation quite differently:

If you did the calculation for someone who didn’t pay taxes but expected to receive money from the government, the higher the tax rate on those people who do earn, the better for you.

There in lies the problem. The 16th Amendment gave the “mob” unfettered access to other people’s wallets. And Congress has spent a hundred+ years getting to JUST below the point of rebellion for 40% of America by giving it to the other 60%.

Once they run through our money they will go through our time. Believe it. Forced “Volunteers” will be the new tax.