Monday, October 11, 2010

Mankiw on taxes

A fine NYT column on taxes from Greg Mankiw.

The literature on optimal income taxation suggests higher rates on those who supply their labor inelastically so as to minimize the behavioral response to the taxation. This is, of course, just a special case of the general point that you want to tax things that will not change in response to the taxes. Rather obviously, this conflicts with distributional concerns, but it is worth keeping in mind nonetheless.

Greg's piece also implicitly points out that estate taxes are a boon for the higher education sector, as it allows wealth, or at least the capacity to create wealth, to be passed on without paying the inheritance tax.

Addendum: responses from Tyler Cowen and from Greg Mankiw.

I think Tyler is correct to raise the moral dimension. As marginal tax rates as high as 90 percent can have little justification other than incompetence or envy, it is hard not to see them as immoral as well as inefficient.

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