*Update: See also my discussion with Instapundit Glenn Reynolds on PJTV here.*
Four more “Going Galt” items for you:
*GOP Rep. John Campbell comments to the Washington Independent:
“People are starting to feel like we’re living through the scenario that happened in ‘Atlas Shrugged,’” said Campbell. “The achievers, the people who create all the things that benefit rest of us, are going on strike. I’m seeing, at a small level, a kind of protest from the people who create jobs, the people who create wealth, who are pulling back from their ambitions because they see how they’ll be punished for them.”
Reader Pete e-mails:
May I please offer an example of why I am about to “Go Galt?”
My wife and I are both teachers, so we are not nearly in the upper income brackets. However, I do some consulting on the side and the taxation on that income is unbelievable:
– 25% federal income tax
– 9.3% state income tax
– 7.65% self-employed Social Security and Medicare tax
– 7.65% “employee” Social Security and Medicare tax
So I am paying a nearly 50% tax on the income from my little consulting business. 50%! So, to heck with this. I’m “going Galt” on my consulting.
(A side note: Most of my consulting has to do with training teachers to teach Advanced Placement classes. I don’t mean to sound self-absorbed, but I have a pretty strong reputation, and teachers report back that the training they have taken with me has helped their students to be far more successful on the challenging AP exams. But at this point, Michelle, I don’t care. I’m fed up. Let somebody else in my modest income bracket pay the federal government 50% of his/her earnings.)
And many interesting comments in Megan McCardle’s thread on the subject, including these:
Three examples I personally know of:
1. I recently talked to a record shop owner, who had two shops, four employees, open seven days a week. He let go all four employees, closed one shop, is only open five days a week, and reduced hours at that. Result? Almost the same take-home, and greatly reduced blood pressure.
2. The owner of a small custom stained-glass shop, where I am currently taking a class, let one employee go because the additional income she brought in was not worth the added hassle.
3. I retired from a pretty good job at the end of last year, at the age of 61. I could easily have kept working, or found another job. With pension, and social security in a few months, my gross will be considerably less. But, after taxes are taken into account, the net is not all that much less. I figured that I was working in a pretty high-stress job, for little incremental income.
By the way, I have talked to other folks in similar positions, who have run the numbers in the same way I did. Most of them realize they are knocking themselves out for a few bucks an hour, but keep going out of inertia, or a sense of duty. But if things get even worse, as I suspect they will, expect more upper-middle-income to upper-income folks to quietly drop out.
I would be interested to hear if other readers know of similar cases.
Posted by Uncle Bill | March 4, 2009 9:29 PM
I’m going to add a few more anecdotes, in the hope that of pushing the total over that needed to become data.
Quite a few people in my line of work are taking the slow season off, and I know a few older entrepreneurs who have drastically downsized their business.
Higher taxes are probably not going to stop status-hungry single blue-state urbanites from working like slaves to make partner. That’s why there’s such support for high taxes in that demographic – they’re interested in status, not money. Money doesn’t really matter that much when no matter how much you make you’ve still got roommates.
It’s unlikely people are going to go Suvivorman on us, which saddens me, because I love the show.
However, higher taxes are going to hit at the margin – mostly older entrepreneurs winding down their life’s businesses a few years earlier, late-middle-aged people retiring early, small businessmen substituting highly-regulated labor with slightly lower-returning capital (possibly by outsourcing)
I know I certainly have made plans to travel more and work less.
Posted by secret asian man | March 4, 2009 9:49 PM
While it’s certainly unlikely that any huge percentage of America’s most productive people will “go Galt” — even partially — you already have a fair amount of anecdotal information right here to suggest this will matter at the margin.
If I were a wealthy 55-year-old in Manhattan, I might seriously think about early retirement rather than paying 60 percent of my income in federal, state and city taxes.
Also, and probably more importantly, if I were a brilliant scientist or engineer from the third world, rising tax rates would certainly alter my calculations about which rich nation to grace with my productivity — especially considering the added bonus of the anti-H1B movement in Congress.
Add all that up and guess what, the economy will probably grow a bit slower over the next few years than it otherwise would have. Atlas Shrugged in a minor key.
Posted by Scoop | March 4, 2009 10:54 PM
And from Stephen Spruiell’s readers:
I am a CPA who spent the the better part of the last 7 years working in public accounting. It is not only the increase in the rate that scares those who are making the $250K plus, but the FICA taxes Obama wants to throw on it too. So really it would be a jump not to 39%, but more like 53% when you factor that in. Most of my savvier colleagues in public practice, as soon as it became apparent that Obama was going to get elected, immediately started advising clients to accelerate as much income into 2008 as possible and push as much expenses into 2009. Pay any large dvidends or distributions out of your company in 2008 before either the dividend tax rate goes up or those distributions from your S-corporation are subject to FICA. On top of that, some of the earners will probably ease up, figuring it isn’t worth giving up 60% of your income (when your factor state taxes) to the government. Some who own small businesses will just not hire or invest in new equipment.
… while it may be true that under Obama the marginal effect is only 2, 4, or 6% (depending on what actually passes from his budget), I think the greater effect is the psychological line that Obama has so clearly drawn in the sand. If the tax rates are adjusted so that someone making 250,000 is taxed at 39.6%, if this person is self-employed, they are looking at a total tax rate of up to 61.4% on each dollar over $250,000. [61.4% = Federal Income Tax (39.6), State Rate (up to 10.3% in California), and self-employment tax rate (roughly 11.5% when you take into account your deduction for ½ of the self-employment tax)].
I am a tax accountant, don’t consider myself to be an idiot, and I am right in Obama’s income target range. I will be joining those looking to limit hours worked so as not to enter that 60% territory. Part of the motivation will be the self satisfaction of not contributing to the socialist cause.