Mankiw has been bleating about high marginal tax rates for the rich:
I am regularly offered opportunities to earn extra money. It could be by talking to a business group, consulting on a legal case, giving a guest lecture, teaching summer school or writing an article. I turn down most but accept a few…
Suppose that some editor offered me $1,000 to write an article. If there were no taxes of any kind, this $1,000 of income would translate into $1,000 in extra saving. If I invested it in the stock of a company that earned, say, 8 percent a year on its capital, then 30 years from now, when I pass on, my children would inherit about $10,000…
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?
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.
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…As they face higher tax rates, their services will be in shorter supply.
Come to think of it, what’s the marginal cost to Mankiw of his prime “money-making opportunity”, those endless new editions of his all-conquering textbook (for which he reportedly received a $1 million advance, and which he of course assigns to his own students)? Let’s ask Mankiw:
I am looking to hire a Harvard student to work with me as I revise my principles textbook (along with several other less time-consuming tasks). The part-time job requires strong writing/editing skills, the ability to proofread carefully, some facility with data, and an interest in pedagogy. Work would start soon, and it would continue throughout the summer and into the fall term. Because most of the communication can be via email, there is no need to stay on campus during the summer.
If you are interested, please drop off a brief letter, resume, and transcript with my assistant Lauren La Rosa in Littauer 230.
You can see why nothing else seems quite worth the effort.