higher taxes affect Greg Mankiw

Harvard economist Greg Mankiw’s recent blog post leaves me scratching my head.

Many of the world’s professional economists are spending the next few days in San Diego for the annual ASSA meeting, where economists network, get some publicity for themselves, and learn what other economists are up to. I am skipping this year’s meeting to spend more time with family.  You might think that is lazy of me.  But heck, my marginal tax rate just went up.  A bit of extra laziness is optimal.

If I were there, one event I would certainly attend is the annual humor session. …. Unlike most of the sessions at the meeting, the humor session is free and open to the public. And best of all: the benefit of attending is entirely nonpecuniary, so it won’t be reduced by the new higher tax rates!

Greg Mankiw, “ASSA Humor Session“, Greg Mankiw’s Blog, 3 January 2012.

Professor Mankiw (born 1958) is author of the best-selling first-year textbook Principles of Economics. He was economic adviser to Republican candidate Mitt Romney from 2006 to 2012 and chaired GW Bush’s Council of Economic Advisers from 2003 to 2005.

Since Greg Mankiw does not permit comments on his popular blog, I am posting this on TdJ. Because of the “Fiscal Cliff” deal passed by the Senate on January 1st and by the House of Representatives the following day, payroll taxes will increase in 2013 from 4.2 percent to 6.2 percent, from the very first dollar of earnings up to a maximum of $113,700. Mankiw’s Harvard salary is undoubtedly larger than this, so the payroll tax cannot be the marginal tax to which he is referring.

More likely, Mankiw’s reference is to the increase in income tax rates, from 35 percent to 39.6 percent, on earnings greater than $400,000 ($450,000 for couples). Wealthy taxpayers will also see taxes on capital gains and dividends increase, from 15 percent to a new top rate of 23.8%.

But why would increased taxes on income cause Greg Mankiw to cancel a trip to San Diego to participate in the annual meeting of the American Economic Association? One possibility is that lower after-tax income in 2013 makes it difficult for him to finance travel to San Diego. Professor Mankiw clearly states, however, that his reason for non-attendance is laziness, so the budget constraint explanation can be ruled out.

Mankiw writes that the benefit of attending the humor session “is entirely nonpecuniary, so it won’t be reduced by the new higher tax rates”. But this is true for the entire meeting, not just the humor session! Now, higher taxes on earnings might discourage a young professional who attends only to search for opportunities to increase his or her income, but attendance is irrelevant to the income of a successful economist like Greg Mankiw.

I can only conclude that Professor Mankiw must be joking when he asserts that it is optimal for him to stay home with family this weekend because of higher marginal taxes on his 2013 income.

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