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July 10, 2012 2:56 PM Marginal Tax Rates and Incentives To Work

By Ed Kilgore

Paul Krugman makes a couple of very good points about marginal tax rates and their impact on the economy:

[I]f you care about incentives, you should care about everyone’s incentives. The top 0.01 percent may like to imagine that it is the engine of the economy, but there is no good reason to believe that there is anything special about their role other than the fact that they make lots of money. Or to be a bit more specific, there is no reason to believe that there is a larger gap between the social marginal product of super-elite earners and their pay than there is for anyone else. (If anything, given the prominence of dubious financial activities in the top .01’s income, the presumption goes the other way). So if you’re worried about the effect of marginal tax rates on work incentives, you should worry about that effect at all income levels.

Actually, the belief that the wealthy are the “engine of the economy” and everyone else is pretty much disposable has become all but orthodoxy in the GOP of late; hence the ubiquitous use of the term “job-creator” as the new term for “the wealthy,” and hence the manifest conviction that non-executive wages and benefits are to be viewed primarily as business costs to be minimized wherever and however possible. So this may be the rare case when Krugman is being a bit too charitable towards Republicans. But his other point is important, too, particularly if you have internalized the conservative belief that progressive taxes are driving “job-creators” to the point of shrugging off their burden and Going Galt:

Here’s the thing: it’s actually a well-documented fact that effective marginal rates are highest, not on the superrich, but on workers toward the lower end of the scale. Why? Partly because of the payroll tax, but largely because of means-tested benefits that fade out as your income rises.

Conservatives do have an answer for that problem: cut the benefits! Perhaps the work of actual workers is undervalued by the Right, but they do understand somebody’s got to do it.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on July 10, 2012 3:20 PM:

    The question every person in the MSM needs to ask Republicans is:
    "If we've already given these 'Job Creator' tax cuts for over 10 years, then where were the jobs during the Bush administration, and the past almost 4 years?
    Where are those jobs?
    In reality, since those tax cuts, W actually had the worst job creation record of any President in modern American history.
    WHERE ARE THE JOBS?
    How many more tax cuts do they need before we start seeing more jobs?"

    And of course, NO highly-paid reporter, pundit (Krugman excepted), or host, will ever ask this question.

    After all, they work for "Job Creators" who could 'destroy' their 'jobs' and careers in a nano-second.

    This is the MSM as Stockholm Syndrome victims.

  • jjm on July 10, 2012 3:35 PM:

    Why we employ lots of maids, gardeners, chauffeurs, pool boys and handymen.

    Why aren't they satisfied with that??

    (I know Rush Limbaugh eats two steaks at a single sitting, but really how much can the 1% consume to make up for what the rest of us cannot begin to afford?)

  • rea on July 10, 2012 3:39 PM:

    "If we've already given these 'Job Creator' tax cuts for over 10 years, then where were the jobs during the Bush administration, and the past almost 4 years?"

    Oh, think of how bad off we'd be without all those jobs created in resposne to tax cuts![/sarcasm]

  • T2 on July 10, 2012 3:47 PM:

    the "job-creators" crap is just that. Question for GOPers....if cutting taxes on Wealthy creates jobs, why did unemployment skyrocket under the Bush Tax Cuts for the Rich?
    They never have an answer for that, do they?

  • Mitt's Magic Underpants on July 10, 2012 3:59 PM:

    Silly Ed. We have all the evidence we need! Clinton raised the marginal tax rate, and all the Republicans said it would destroy the economy. And we remember what a hellscape the Clinton years were!
    W cut taxes and unleashed the job creators! Look at the facts -- 8 years under W, and they job creators almost created one net job!

  • Purplehawk on July 10, 2012 5:08 PM:

    I'm fed up with the term "job creators," as it is little more than a modern twist on the much older "producerism" espoused by Ayn Rand. It was also prominently on display in fascist Italy and Nazi Germany not so long ago.

  • Shelly on July 10, 2012 8:18 PM:

    Setting aside the annoying rhetoric, the argument is also silly in that it assumes that people earning $250K must be paid by the hour, or on some other per-unit basis, and would be discouraged from working more by the higher tax rate. But most people in that tax bracket are salaried (or get to that bracket via a bonus, earned after the hard work is done), so "how hard" they work isn't related to their tax burden.

    Then there's also the point that even if you are taxed at a higher rate on the next dollar earned above $250K, you still have more than you would have if you hadn't "worked harder" to get that $251 K -- the difference is just less.

  • Neil B on July 10, 2012 10:12 PM:

    One of the major fallacies of the Right is that we need rich *people* to fund investment, but instead, it's funded by "money" which (as alluded by Krugman) can come from anyone. It has no need to be unequally distributed. Also, rational choice theory is about picking the best of whatever available alternatives. If you are taxed whatever at your income level, the *best choice* is still what makes you the most money among *those choices* under those conditions.

    "Fine minds make fine distinctions."

  • John on July 11, 2012 12:11 AM:

    Democrats should coopt the term "job creators" and use it to describe consumers since it is demand that actually creates jobs. They could sponsor bills titled "Job Creators Tax Cut" or some such. Every time they get this thrown at them on a talk show they can brag how they are helping the "job creators" with the ACA, the Lily Ledbetter Act, the stimulus, and so on. Within a mont the Republicans will stop talking about job creators.

  • Registeredguest on July 11, 2012 11:03 AM:

    A lot of annoyance with the "job creators" meme here.

    Me too, from long ago. But I'm more annoyed with the Dems who sit quietly on the Sunday morning talk fests when the republics use the term. And believe me they do. Peggy Noonan on Face the Nation will talk about the "job creators" and Donna Brazile will say nothing.

    This is just yet another example of why the Dems fail. They let the republics introduce these false terms into the lexicon and don't seem to be able to generate counter arguments of their own.

  • amorphous999 on July 11, 2012 6:42 PM:

    I remember a comment from a small business owner: "If you give me a tax break, I'm going to take a better vacation. If you want me to hire people, send me customers".