Wednesday, November 11, 2009
It's a little odd that Harvard economics professor N. Gregory Mankiw, in a recent column in the New York Times ("Supply-Side Ideas, Turned Upside Down", Oct. 31), would cite an anecdote from President Ronald Reagan as evidence that "high marginal tax rates discourage people from working to their full potential."
Professor Mankiw recounts that the President told his staff he used to alter his work schedule as an actor to avoid falling into the top marginal income tax bracket: he and his fellow stars "quit working after four pictures and went off to the country."
President Reagan was a wonderful story teller. Many of his narratives had a troubled relationship with reality — recall the Cadillac-driving welfare queen and the freedom-fighting Nicaraguan contras — but they played expertly on the prejudices and fears of many Americans.
His cautionary tax tale sounds a bit too much like it was ghost-written by Ayn Rand. But even if we buy it, it's not self-evident that the actor's potential was stunted; you could as easily argue that by avoiding overexposure he might have raised his drawing power.
Another consequence might have been that other less well-heeled actors got the roles that Dutch and his pals spurned, spreading the bounty of Hollywood around more widely and giving the studios fresh blood at a lower price.
In the non-fiction world, in any case, only a small part of the workforce gets jobs in discrete chunks like movie contracts. Most of us work in ongoing jobs for continuous paychecks (if we're lucky), and few of us who do work on contract have the matinee-idol option of taking or leaving the next offer. It's a bit of a stretch, for example, to imagine a software executive taking a leave in November because her yearly income is about to put her into the top bracket.
On the macroeconomic side, the 50 percent and higher top marginal tax rates in force from the end of World War II to the beginning of the Reagan era apparently didn't damage the overall economy, either. Average growth rates were higher and prosperity more widely shared in that period than in the following three decades.
Professor Mankiw will need to pump harder if he hopes to resuscitate the cold, rigid corpse of supply-side economics.