Scott Sumner still doesn’t like my example

This entire post seems like a slight of hand. You are assuming a tax doesn’t fall on a certain group, and then arguing that if it doesn’t, then that group won’t change it’s behavior. Yes, but that doesn’t tell us anything important about the implications of actually taxing that group (i.e. the people not being taxed in your example.) It would be like advocating that employers pay 100% of the payroll tax (instead of 50%), on the basis that it wouldn’t deter them from hiring. Yes, but only because they wouldn’t actually be bearing any more of the tax than they do today.

Yes, but if someone were going around saying that we shouldn’t put all of the payroll tax on employers because it would deter hiring, I would be making the point that in the long run this is not going to matter.

My long point on billionaires is not simply that they do not bear the burden, however. Its that you can tell the burden is extremely light in utility terms because it could be so easily shifted.

In reality I actually don’t think taxes would crowd out charity 100%. But, that’s an optimal choice. Meaning that billionaires could completely avoid the burden of taxation, but don’t because its not really that big of a deal anyway.

Now this doesn’t mean that you should necessarily tax billionaires. Indeed, no one seems to bring up the very important issue that taxes wealthy investors moves capital out of the hands of people who have a proven track record of efficiently allocating it.

In other words the reason not to tax Buffet is not because he will stop investing, but because he won’t have that specific money to invest. It really seems like he knows what he is doing with those resources so society would be better off if he didn’t relinquish control of them just yet.

Indeed, I think he recognizes this because allegedly he and his ex-wife disagreed about charitable giving. She wanted to give all the money away now, he wanted to wait until he was dead.

His point was that he could accumulate even more money and give even more to charity if he waited and I think that is exactly right.

However, the issue that I am addressing is that

1) People are saying that billionaire taxes are going to harm work effort; and

2) They really seem to believe what they are saying.

Its not like the work effort argument is just a rhetorical device for getting some policy end. I think people believe that it is true. And, I believe that they are wrong. Which is why I want to correct this issue.

Now if you want to talk about other issues with taxes, like the very important point that Hicksian deadweight loss is not the same as Marshallian deadweight loss then we can and we should.

But, we should not be thinking that the reduction in work effort is big when evidence and reason tell us that it is likely small.