Do you have difficulty at times sorting out what economists are trying to convey? I sure do. Graphs, charts, equations and references to theories of which I have only a slim understanding . . . . Sometimes I feel as if I come away more confused than when I arrived.
Professor Greg Mankiw is a Harvard economist. He'd probably get drummed out of the trade if he didn't offer an array of charts and technical computations within his discussion of tax plans. Still, Professor Mankiw realizes that we, the uninitiated (that would be yours truly) look at all this like Plato's Republic in the original Greek.
Thus, Mankiw kindly explains in plain English what varying tax plans mean in his life. (Well; as close to "plain English as a Harvard economist can get!)
Under the McCain plan, t1=.35, t2=.25, t3=.15, and t4=.15. In this case, 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, t1=.43, t2=.35, t3=.2, and t4=.45. In this case, 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.
For those wondering what the tax plans would mean today, for families and businesses, another view.