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Does anyone else find the entire premise flawed? If all he wanted to do was maximize the amount of income he's going to pass on to his children then he would be

Does anyone else find the entire premise flawed? If all he wanted to do was maximize the amount of income he's going to pass on to his children then he would be an investment banker, not a Harvard professor/author. Any bank would take him in an instant. Trying to make it sound like $1000 is the only incentive in play here seems like a mild distortion at the very least.

jseliger 16y ago
If all he wanted to do was maximize the amount of income he's going to pass on to his children then he would be an investment banker, not a Harvard professor/author. The question is whether he'll act at his present margin (http://en.wikipedia.org/wiki/Margin_%28economics%29 http://en.wikipedia.org/wiki/Margin_%28economics%29) , not whether he's spent his entire life trying to maximize one opportunity. In any event, his bigger point is that a lot of service professionals in particular (think doctors, lawyers, consultants) will make decisions based in part on tax rates. For example, ten years years ago my parents routinely basically stopped working in mid November when they hit the top marginal tax rate essentially because the cost of work got too high (we do grant writing for nonprofit and public agencies, if you're curious: http://blog.seliger.com http://blog.seliger.com). A lot of people have a fair amount of discretion in the amount of work they do, and if you tax them a lot on the last 10 – 30% of income... they'll probably choose to consume less of it. This is related to the backwards bending labor curve: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&k=backward-bending+labor+supply+curve http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&#3... . I assume people have done research to examine how large these effects are in the real world, but I don't know of any off the top of my head. I would also guess that the effects change in the short- and long-term.

jseliger 16y ago

If all he wanted to do was maximize the amount of income he's going to pass on to his children then he would be an investment banker, not a Harvard professor/author. The question is whether he'll act at his present margin (http://en.wikipedia.org/wiki/Margin_%28economics%29 http://en.wikipedia.org/wiki/Margin_%28economics%29) , not whether he's spent his entire life trying to maximize one opportunity. In any event, his bigger point is that a lot of service professionals in particular (think doctors, lawyers, consultants) will make decisions based in part on tax rates. For example, ten years years ago my parents routinely basically stopped working in mid November when they hit the top marginal tax rate essentially because the cost of work got too high (we do grant writing for nonprofit and public agencies, if you're curious: http://blog.seliger.com http://blog.seliger.com). A lot of people have a fair amount of discretion in the amount of work they do, and if you tax them a lot on the last 10 – 30% of income... they'll probably choose to consume less of it. This is related to the backwards bending labor curve: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&k=backward-bending+labor+supply+curve http://www.amosweb.com/cgi-bin/awb_nav.pl?s=gls&c=dsp&#3... . I assume people have done research to examine how large these effects are in the real world, but I don't know of any off the top of my head. I would also guess that the effects change in the short- and long-term.