Posted on Dec 04, 2009
John M Grau
Discussing the implications of tax policy isn’t a conversation you’d normally have with an eight-year-old, but that’s just what I did with my son, Brendan, earlier this week.
Mom was off for a “girls’ night out” and being the resourceful father that I am, I declared a “boys’ night out” at the same time. Brendan and I went to a spot where we could watch a football game while having dinner.
He has been following some of the news about the financial crisis and the post-election events. He had some opinions he wanted to share. He seemed perplexed about the idea of politicians raising taxes.
Brendan is a budding entrepreneur. He takes jobs in the neighborhood collecting mail, watering plants and feeding cats when people are away. He saves most of the money he earns but uses some of it to buy toys or games he wants.
He told me that if taxes go up, he’s not going to take as many jobs. No use working more and sending a good chunk of it to the government, he reasoned. He also said he would cut back on some of his purchases of toys because he will have less money to spend. (He doesn’t pay taxes, so I don’t know where he picked up the idea that he does).
Brendan’s behavior in anticipation of increased taxes is exactly what human nature tells us to do. When economists study dynamic (versus static) models of our economy, they find that people who have control over how they earn money (generally wealthier people) will cut back on what they earn when taxes are increased. So policies designed to “tax the rich” usually don’t produce the extra tax revenue that policymakers think it will.
I guess I was just amazed how an eight-year-old was able to grasp and articulate this basic concept. Maybe politicians should consult with these emerging entrepreneurs.
Later that evening, Brendan told me that he knows what moms talk about during “girls’ night out.” Anticipating more pearls of wisdom I asked him what. They talk about how much they love their husbands, he said.
There are limits to what an eight-year-old understands.