A Few of My Favorite Things

I suppose that everyone has a favorite provision of the GOP tax bill. From the Joint Committee’s staff macroeconomic analysis of the bill, there’s this gem on the possible effects of the changes to the estate tax (PDF page 6):

[I]t is also possible that individuals subject to the estate tax desire to leave a specific dollar amount to their heirs; in this case, an increased exemption would allow them to reach that target amount more quickly, thus reducing their incentive to work and invest. In addition, to the extent that the increased exemption from this tax increases the amount of income received by heirs, this could reduce the labor supply and savings of the heirs, thus reducing the amount of growth in the economy.

That’s right boys and girls: Donald Junior and Eric will likely spend even more time than their dad on leisure pursuits.

3 thoughts on “A Few of My Favorite Things”

  1. I've used this notion for decades as an argument for why (moderate) tax increases on the rich would be a good idea. The classic plutocrat argument is that lowering their return on work will lower their effort, ultimately damaging the economy (see Sidney Harris for the intermediate steps), but that behavioral model has worked for very close to zero other kinds of worker ever. People who are budget-constrained and face a pay cut generally figure out ways to work more hours or more jobs rather than cutting back to show their bosses what's what.

    You can argue that rich earners aren't really budget-constrained, and that money is instead a positional good for them, but the evidence there isn't so good. First, there's almost always a parkinson's law behavior for expenditures (which are typically sticky). And second, when there are new costs imposed on everyone — hence not positional — rich workers who can will demand a compensating increase in salary to get back to the same number as before (see the history of gross-ups).

    Of course, that doesn't even get into the issue of whether increased work effort by some rich workers is a net positive or negative for the economy as a whole…

    1. Arguing that people who are so rich their heirs for three generations will be rich too need additional incentive to work harder seems to me like arguing that doubling the points in football would encourage players to play harder. ("Well, if a TD is worth twelve points, I'm going to give 120%, maybe even 135.)

  2. There'a always the Louis XIV policy. Random confiscation of the entire wealth of a few plutocrats (the great example is Fouquet) will scare the others into compliance with the royal will. The administrative costs are low. Guantanamo is still open anyway, and the marginal cost of adding one billionaire scapegoat is trivial.

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