Scott Adams shows how easy it is to miscalculate tax rates

by philg

Scott Adams posted yesterday about how Hillary Clinton’s proposed extension of the current tax regime will result in a tax rate of 75 percent. He figures that a 50 percent income tax and then a 50 percent estate tax rate will result in the government getting 75 percent of marginal earnings. (Note that Adams lives in California, where a state estate tax is prohibited by the constitution. The estate tax rate would be higher for someone who lived in Massachusetts or New York, for example.)

Adams is obviously a smart guy so this posting shows how easy it is for citizens to miscalculate their true tax rates. A Harvard economics professor, Gregory Mankiw, made a more thorough attempt in the New York Times. He came up with a 90-percent rate by including taxes on earnings from investing the money between earning and dying. (Adams’s 75-percent figure would still be incorrect assuming that the money were stuffed under a mattress because government-generated inflation would in that case tax the value away gradually.)

[Note that Hillary herself skips out on both income and estate taxes for most of her compensation. If, in return for access or a favor, someone gives money to the Clinton Foundation via this web page, her daughter Chelsea can spend that money chartering a Gulfstream 20 years from now and there will be no taxes at all (assuming that Chelsea can come up with a Foundation-related reason why she needed to fly to Europe).]

7 thoughts on “Scott Adams shows how easy it is to miscalculate tax rates”

  1. I got the world smallest violin for the .2% like Adams. How would his kids eat on $10M untaxed.

  2. tekumse: I think you’re missing the point. Adams is not saying that his kids will starve and therefore you should have sympathy for him or them. He is saying that people like him will slow down on work because they already have enough money for themselves and the tax rate on earnings to be passed down to a child is very high. This will shrink the GDP and also shrink current government revenues compared to what they could have been. As Mankiw said in the nytimes: “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?”

    Mankiw sitting at home watching Amazon Video (I recommend their Jane Austen “Love and Marriage” production) is not doing anything to generate tax revenue for the government. So if you depend on government services you might want to do something to get Mankiw and Adams back to work and paying at least income taxes.

  3. He could endow something and work for a non profit as many ultra rich do. We can use a new Carnegie Hall or Getty Museum or Adams School of Cartoon Arts.

    Or he could spend his money and accelerate the economy now so there is no giant estate.

  4. tekumse: The typical rich douchebag who creates a non-profit sends the money out of the U.S. altogether. See the Gates Foundation, for example. The best way to signal virtue is to go over to Africa and help the “most vulnerable” (or, be like Angelina Jolie and adopt some of them?)

  5. I am failing why you should care about whether Scott Adams takes to chance of earning more money and just maybe pay more taxes. From a taxpayer standpoint there is a cost in people not doing income creating work (and thus taxable income), but, past some ill defined point Jonny Taxpayer has enough revenue to invest in accountants that will help him become more ‘tax efficient’, i.e. pay less tax. Thus the ideal world sees taxpayers earning to whatever max it is that does not give them access to any tax dodging schemes (this is true for corporations as well).

    In addition, it does not matter where tax money comes from, it’s not that unless it was fleeced off Adams we cannot spend it. Scotty might have to pass on some income generating idea because his marginal income from that would be 0; that’s perfectly fine because Scotty is not an unique and precious snowflake and plenty of other people can generate taxable income from that opportunity.

Comments are closed.