If there were no taxes of any kind, $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.I wonder how many Econ professors will assign this article along with Mankiws textbook this semester? Hat tip to AidWatch.
Now let’s put taxes into the calculus... 39.6 percent in federal income taxes on that extra income... 1.2 percentage points... Medicare tax, which the recent health care bill is raising to 3.8 percent... 5.3 percent in state income taxes... that $1,000 of pretax income becomes only $523 of saving, and no longer earns 8 percent... 35 percent corporate tax on its earnings... the $523 in saving grows to $1,700 after 30 years... estate tax...
My kids will get, at most, $1,000 of it.
Thursday, October 14, 2010
Mankiw On Tax Rates
Greg Mankiw, author of the most common introductory texts in economics, lays it on the line with a clever little treatment of tax incentives in the NYTimes.