Friday, August 16, 2002

Lagniappe - The Flying Monkey, a faithful reader of The Huck Upchuck, writes: "I want to throw out the following quote for your commentary: 'I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from the people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayer will be left to bear the entire burden. If on the other hand, the rates are placed where they will produce the most revenue from large incomes, then the small taxpayer will be relieved.' Bonus question: Who said it?"
Response: Even though I find this quote to be quite confusing, I'll try to respond. The fact that it is somewhat confusing to me leads me to believe (especially since I consider myself to be a fairly bright chap) that the author of the quote is either an accounting charlatan and/or a shifty politician prone to double-speak - and probably a partisan of high income earners of times before the New Deal, but after the Industrial Revolution. My guess at the bonus question: Calvin Coolidge. Now ... my reaction: What the quote seems to be saying is that high tax rates on large incomes serve as a disincentive to earn large incomes. Unless the tax rate exceeds 100%, and even if people work ONLY for the money, the chance to add any amount of additional income to the pocketbook - even 1 cent on every dollar earned - may be incentive enough to work. Of course, opportunity costs factor in, and good chances are that not very many people would do this. However, the next question has to do with the non-$$$ value of work. The author of the quote assumes that if tax rates go too high, people's energies will shift to activities other than income-producing work - that is, activities whose (non-$$$) intrinsic value (i.e. having a picnic in the park and reading the latest trash novel) exceeds the $$$-compensated value of this picnic time that could have potentially been spent at work earning an income. But what if WORK's intrinsic value is such that one will do it regardless of $$$. This is not such a far-fetched notion. There are plenty of people who work for the love of it, and not for the money. Just ask any teacher. The author's implied attitude is one in which work is a necessary evil, not a source of personal fulfillment. An additional question must also concern the value one attaches to the use of the tax revenue. If I earn 1 cent on the dollar, but I think that the 99 cents given in taxes is being spent wisely, efficiently, and for good cause, then I might just not mind it so much. Again, there's a threshold here, but it varies from one person to the next. Finally, where would the author have such "rates" placed on high incomes that would produce the most revenue? This part of the quote would be laughable, if it weren't so pathetic. I didn't know you could squeeze out of a 40% rate applied to high incomes any more or less than 40% revenues from the income amount in question. And I certainly don't see how giving a break to large income earners relieves anyone other than the large income earner - unless, of course, there's some "fuzzy" math at work here.

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