93% Marginal Tax Rate Under Obama

Posted October 29, 2008

Let me start by saying: I’m voting Obama.

However, this analysis by Greg Mankiw, a Harvard economist who wrote “the book” on macroeconomics, is bringing tears to my eyes:

If there were no taxes, … then $1 earned today would yield my kids $28. That is simply the miracle of compounding.

Under the McCain plan, … a dollar earned today yields my kids $4.81. That is, even under the low-tax McCain plan, my incentive to work is cut by 83 percent compared to the situation without taxes.

Under the Obama plan, … a dollar earned today yields my kids $1.85. That is, Obama’s proposed tax hikes reduce my incentive to work by 62 percent compared to the McCain plan and by 93 percent compared to the no-tax scenario. In a sense, putting the various pieces of the tax system together, I would be facing a marginal tax rate of 93 percent.

The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids. They will be poorer when they grow up, but perhaps they will have a few more happy memories.

1 Comment so far

  1. Pooya on October 31st, 2008

    You may want to double check his math and the facts there. If you read Obama’s tax plan (check his site), it states the highest income bracket would pay 39.6% (not 41%). This example also assumes that the person earning it (him in this case) is going to be taxed at the highest income tax rate, which is fine but isn’t the case for most employees.

    The rest of the math is also based on assumptions, why would you pay the dividend tax unless you invest in stocks that pay dividends? what if you only invest in (or heavily invest in) real estate instead.

    Basically I don’t think you can just add the taxes the way he does because it really depends on what you’re doing with your money.

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