The notion of “Going Galt” or “Going John Galt” or even sometimes simply “Galting” has come up recently, thanks to the taxation policies of President Barack Hussein Obama. I touched on this briefly in Democrisy: Jesse Taylor and “Going Galt”, which got this poor site its second Instapundit link and a very happy Instalanche. 
Donald Douglas has a brief round-up:
“Going Galt” Around the Blogosphere
The intense interest, advocacy, and backlash surrounding “Going Galt” is one of the more interesting blogospheric happenings I’ve seen in some time. It turns out that The Liberty Papers has a roundup, “Will Atlas Shrug? A Compilation of Blogosphere Commentary about “Going Galt”:
There’s a new craze hitting the conservative tubes on the Internets these days: “Going Galt!” While it’s difficult to identify an exact date of reference or to provide any unique person with credit for the general meme, Michelle Malkin and Helen Smith certainly deserve honorable mention for recently popularizing the phrase.
This movement seems to have manifested itself in two distinct, but related, forms: those who say, more-or-less, that “I ain’t gonna produce more that 249,999 dollars and 99 cents of taxable income” as well as those more accustomed to singing “Amazing Grace” than Twisted Sister taking to the streets across America chanting “we’re not gonna take it anymore.”
Here are some relevant (and hopefully balanced) quotes I’ve found on all sides of the aisle regarding this recent phenomenon. Enjoy!
Check the link for the compilation.
Hat Tip: Instapundit.
It seems to me that the first step is to define “Galting.” Emily Friedman described it in an ABC News report:
President Barack Obama’s tax proposal — which promises to increase taxes for those families with incomes of $250,000 or more — has some Americans brainstorming ways to decrease their pay in an attempt to avoid paying higher taxes on every dollar they earn over the quarter million dollar mark.
A 63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law.
“We are going to try to figure out how to make our income $249,999.00,” she said.
“We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama’s tax plan,” she added. “Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”
If you continue with the ABC News report — which was modified from the original, to better explain the tax law changes — you’ll note a major feature of the American progressive tax structure: it is a marginal system, so that the higher tax rate of 39.6% on incomes above $200,000 for singles and $250,000 for maried couples filing jointly applies only to the income above $200,000/$250,000. Thus, the additional tax under President Obama’s structure on a taxable income of $251,000 would be 4.6% (the difference between the current 35% rate and 39.6%) of $1,000; that’s $46.00.
Some people, like Jesse Taylor, simply mocked the idea that anyone would choose to lower their income via lowering their productivity simply to avoid the Obama tax increase, and even told us that:
“Going Galt” is demeaning to the very idea of America – that we make a valuable contribution to society by being good citizens, working hard and raising families and anything else you’d put in a Norman Rockwell painting, like drinking Coca-Cola.
I had some fun with the idea that one writer on Pandagon would be telling another writer on Pandagon that not having babies was demeaning to the very idea of America, but I did notice that among the things Mr Taylor listed, paying taxes was rather conspicuously absent. Perhaps Norman Rockwell never painted a picture of Mom and Dad sweating over a Form 1040; I can see where that wouldn’t have been a big seller, or made the cover of the old Saturday Evening Post.
Perhaps Tim Geithner sweating over a copy of Turbo Tax would be the modern version.
Well, in some ways, the idea can be mocked, at least at the levels just above $250,000. The additional tax is $46.00 per thousand of taxable income over $250,000¹, and for a couple coming in at $280,000, the additional tax of $1,380 may not be enough to offset whatever economic structuring tricks are necessary to get their taxable under $250,000. And unless she happens to be John Edwards productive, the Lafayette, Louisiana attorney is probably not making so much over $250,000 taxable that it necessarily becomes worth her while.
It is those who are John Edwards productive who will see the value in tax avoidance measures. In 1995, Mr Edwards made $26.9 million as a personal injury attorney. Rather than taking that all as income, he formed an S Corporation, which took the money. As a sole proprietor, he was required to pay himself a “reasonable” salary, which he did: $360,000, which isn’t bad at all for an attorney in private practice. The rest he took as dividends from his S Corporation.
This does two things. First, because Medicare taxes have no top threshold, the way Social Security taxes do, Mr Edwards paid Medicare taxes only on the $360,000 he took as a salary, at 2.9%.² This link explains all of the details.
Just with that particular trick alone, an S Corporation proprietor today would limit his self-paid salary to $250,000, and take the rest in dividends. Not only would this avoid more in Medicare taxes, but dividends are taxed at lower rates than ordinary income. The Tax Increase Prevention and Reconciliation Act of 2005 extended the Jobs Growth and Tax Relief Reconciliation Act of 2003 capital gains and dividend tax rates of 20% and 15%, respectively, until 31 December 2010. If nothing is done, the dividend tax rate will return to the taxpayer’s marginal rate after that.
However, something may be done. Too many senior citizens depend on dividend income to maintain their retirement income, and senior citizens are not a group that President Obama and the Democrats want to alienate before the 2012 elections. And this is just another door which could be exploited by the very top earners who want to “Go Galt.”
There are really two considerations involved here. The first, and simplest, is a simple economic one: how can I structure my income so as to maximize my after tax income. The people Mr Obama has targeted for tax increases are precisely the people who can, and do, have both the flexibility of income to do some restructuring and who are able to pay accountants to figure out the after-tax income maximization. The $591,000 in Medicare taxes John Edwards saved in 1995 was almost certainly greater than what his accountant cost him, so using an accountant was a wise business decision for Mr Edwards. Once you get to incomes around $500,000, the income tax difference alone of $11,500 could very easily pay the accounting fees, especially when you consider that they were probably already using an accountant.
But the second consideration may well be more powerful: it is the emotional consideration of people who think that increasing their taxes, because they have played by the rules and worked hard and been successful, is just plain unfair, and who will want to resist. There will be those who don’t like President Obama’s moves toward greater government control of everything and greater federal involvement in the economy and in people’s lives who will see this as a method of resistance. In strict dollars-and-cents, the new tax rates might not be enough to pay for additional accounting services or whatever restructuring is needed for people in the $250,000 to $300,000 range, but the emotional considerations might well push them in that direction anyhow.
Our friends on the left realize that, too. That’s why you see articles such as Mr Taylor’s, that’s why Eric Etheridge of The New York Times went heavy on the reasons not to Galt in this piece, and that’s why many of our friends on the left will be using the Joe Biden “paying higher taxes is patriotic” tactic, because an appeal to the purly rational, to the dollars-and-sense calculation means that for those who can reduce their tax burden will do what they can to reduce their tax burden.
We had great patriots like Tom Daschle and Tim Geithner show us how that’s done! The difference is, those who are talking about Galting are talking about legal means of reducing their tax burden.
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¹ – Or $200,000 for singles. It makes for poor prose to keep referencing that in the body of the article, so for the rest of this article, $250,000 refers to the threshold income for married couples, and $200,000 for singles is implied.
² – The Medicare tax rate is split 50/50 between the employer and employee, but for a self-employed person like John Edwards, all 2.9% has to be paid.
Ultimately this all will lead to more pressure on a common man to earn more. Because when a person starts to spend more obviously he has to earn more so that he can pay his bills. Because if he fails to pay the bills then it will have effect on his credit history.
But the second consideration may well be more powerful: it is the emotional consideration of people who think that increasing their taxes, because they have played by the rules and worked hard and been successful, is just plain unfair, and who will want to resist.
Shorter Dana Pico: Pity the poor forex dealer, forced to subsidise the shiftless maid cleaning their hotel room…
Back in the real world (dated 2003?:
“The top nine slots of the list of highest paid professions worldwide are medical professions, starting with anesthesiologists, who in 2006 earned a median of $145,600 US Dollars (USD) per year. Further down the list can be found General Internists, Obstetricians/Gynecologists, Oral and Maxillofacial surgeons, Orthodontists, Prosthodondists, Psychiatrists, Surgeons, and Physicians. The 10th slot goes to Chief Executives, with a median income of $142,000 US Dollars (USD) yearly.
The next 10 highest paid professions worldwide are also heavily weighted with medical professionals, and include Family and General Practitioners ($140,400 US), airline flight crew such as pilots, copilots, and flight engineers ($138,000 US), pediatricians and dentists, with medians of between $125,000-136,000 US yearly, and air traffic controllers ($107,000 US). Astronomers and chief engineers take the next two slots, with medians hovering around $100,000, and they are closely followed by podiatrists, lawyers, and judges. Professionals who specialize in natural sciences such as physics and petroleum engineering, along with computer scientists, fill out the list of the top 25 highest paid professions worldwide.”
Or 2005 statistics on medical specialities.
Additional shorter Dana Pico: Being a Republican, and therefore stupid, I find facts to have a well known liberal bias.
Shorter Pho: I hate smart (and rich) people.
You see the “going Galt” phenomenon not merely among the affluent, but at all levels of society. For example, are the rewards (money) of working overtime worth the loss of free time? I see this with the people I work with quite a bit. New employees will gobble up overtime, calculating what they should be getting, then showing great disappointment when what they collect is far less than what they thought they would get. There’s also the fact that you must work 40 hours before you are eligible for overtime; a week with a holiday means you have to still work 40 hours before time and 1/2 kicks in. My office has a mini-revolt going on over this practice. Some people have signs in their cubicles reminding themselves not to sign up for OT on a holiday week.
Chris Muir gets theme appropriate:
Should we really find fault with those who avoid ill-conceived taxes by legal avoidance?
If a victim of a mugger demanding ‘your money or your life’ puts a fatal round into the thug, should we debate as which party was the villain?
Bush I got suckered into agreeing to a ‘luxury tax’ on boats. From the standpoint of the practitioners of the politics (and economics) of envy, this was a rational tax. It would be paid only by the wealthy and they have a lot of spare cash and would not miss the amount involved.
There was a popular jest that those who ask the price of a yacht cannot afford it. While some with inherited wealth or ‘easy money’ (such as lottery money or ‘star pay’) in their accounts can take a cavalier attitude towards spending, most people with disposable income worked for it. Many got what they have by paying attention to what they pay for things.
Many middle-class boating enthusiasts did not upgrade to a new boat when they felt the urge but kept what they had or bought something used and tax-free. The high-end yachtsmen could buy off-shore and duck the tax.
The net result was the loss of American jobs that involved workers who were not likely to be purchasers of the products that they built.
From the standpoint of the would-be ‘levellers’, imposition of the ‘Luxury Tax’ was a great symbolic victory.
Symbolism is often the last refuge of the legislatively inept.
Given the list from our friend in New Zealand, one would think he’d be agreeing with us. With the highest paid professions being medical ones, it is easy to see how they could cut back on their productivity; an OB/GYN could simply deliver fewer babies, a general practitioner could take fewer patients.
The Phoenician said that anesthesiologists were the highest paid, with a median income of $145,600; that number is considerably lower than the $200,000/$250,000 threshold for the higher tax rates, but if one median-earning physician is married to another, it’s easy enough to see how, together, they could easily exceed the threshold. To choose to cut back on patients would be to choose to have more time to spend with each other. I don’t know how things are in New Zealand, but physicians of all stripes tend to work a lot of hous in the United States.
Of course, even there, the Phoenician has chosen a bit of a misleading statistic. The median is the number at which half of the range is under and half of the range is over; if the median income for anesthesiologists is $145,600, then half of the anesthesiologists in the United States earn more than that. There is some assumed clustering near the median, but the top end of the range could be very high. Median does not mean average.
Art asked:
Ahhh, but that’s just it: our friends on the left do precisely that! Vice President Biden called it patriotic for the wealthy to pay higher taxes. And so many of President Obama’s appointees — think Tom Daschle, who opposed the 2001 and 2003 Bush tax cut proposals — supported the notion that we should have higher tax rates, yet chose, for themselves, not to pay even the lower taxes they owed.
However, as far as our friends on the left are concerned, you could have omitted the adjective “ill-conceived,” at least as it applies in general. In their individual cases, why there’s nothing wrong with having an accountant around to find every little deduction available.
We all remember how Bill and Hillary Clinton, populists that they are, took charitable deductions for donating used underwear to Goodwill. (Actually, it was used clothing, which included underwear, but the used underwear part made it much more humorous.) John Kerry, the 2004 Democratic presidential nominee, and a man much, much wealthier than the Clintons (though due primarily to having married a very wealthy woman) made an $85 charitable in-kind deduction to Goodwill, which led one wag to ask if he was deducting for his used undies.
Well, we have made clothing and furniture donations to Goodwill as well. But, though we do itemize our deductions, and take substantial charitable deductions every year¹, we never bothered to count up how many outgrown coats or shoes we put into the donation bins, never itemized the old couches or used socks. While it is a legitimate deduction, it simply doesn’t seem worth the effort, and, humor aside, I found it amusing that Bill Clinton would tabulate up how many pairs of white, brown and yellow underwear he gave to charity, deducting $2.00 apiece.
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¹ – For those who will wonder, all of our charitable donations are backed up by statements of donation (replacement 1099s) from the church, and the United Way deduction listed on Mrs Pico’s Forms W-2. If we make a charitable donation we intend to deduct, we do so by check. If we were audited by the Infernal Revenue Service (and we never have been), we have all of the documents available to prove the claimed charitable deductions.
It’s probably a wise idea, since I’d guess that a lot more people have referenced Ayn Rand than ever actually read her books. And no, I have not read Atlas Shrugged.
Of course, even there, the Phoenician has chosen a bit of a misleading statistic. The median is the number at which half of the range is under and half of the range is over; if the median income for anesthesiologists is $145,600, then half of the anesthesiologists in the United States earn more than that. There is some assumed clustering near the median, but the top end of the range could be very high. Median does not mean average.
Uh-huh. That’s sorta the point, Dana – for the vast majority of those people who work for a living, this screaming about taxes is moronic.
Should we really find fault with those who avoid ill-conceived taxes by legal avoidance?
That graph again for those too stupid to have followed the link earlier…
Pho, I take it you didn’t vote for John Keys?
Why is it moronic to scream about high tax rates just because you make more money? Is the argument that, because you happen to be in a profitable profession, you don’t have expenditures or you don’t want to spend your money the way you deem fit? That seems like a pretty moronic argument to me.
My brother in law is an air traffic controller and my sister is a cardiac nurse. Between them, they make a tidy sum, which they choose to spend on their children, their home, and saving for their retirement. One way they earn more is by working the sorts of shifts others don’t want to work, such as holidays and overtime. The extra income allows them to do things they might not otherwise do. But why should they bust their asses to make the extra money just to let Barack Obama give it to someone else? Your charts aren’t particularly convincing on that front.
“Uh-huh. That’s sorta the point, Dana – for the vast majority of those people who work for a living, this screaming about taxes is moronic.”
I’m betting that none of Pho’s predecessors were founding fathers of the US. Pho and his predecessors didn’t get it then so are you surprised he doesn’t get it now. I can hear the British aristocracy 240 years ago saying, don’t those morons get this taxation thing.
I’m betting that none of Pho’s predecessors were founding fathers of the US. Pho and his predecessors didn’t get it then so are you surprised he doesn’t get it now. I can hear the British aristocracy 240 years ago saying, don’t those morons get this taxation thing.
Was Eisenhower a socialist, JCW?
That graph again for those too stupid to have followed the link earlier…
Yeah, I kind of bet that none of the Phoenician’s ancestors were among our founding fathers, too. Of course, that’s ’cause I know he’s a New Zealander!
Just about now he’s concerned about the passing of the last couple of weeks of summer.
I know Pho’s a New Zealander, too. And I bring up John Keys because that’s the NZ Prime Minister who is working on tax cuts and regulation relaxations to get business going.
And, Dana Pico, I know you weren’t directing that at me.
World War II created a real demand for manufactured goods, products that were expended rather quickly, and needed to be replaced again and again. That, along with the destruction of manufacturing capacity elsewhere in the world, led to our huge economic boom. As other countries rebuilt, and challenged our manufacturing dominance, our economy started slowing down, and with the top rate at 70%, we were in a period of what was called “stagflation:” rampant inflation, high unemployment and very slow growth. We came out of it around the time that the Reagan tax cuts dramatically lowered the top rate. President Clinton raised taxes, and a recession that was bottoming out when he took office stagnated into virtually zero growth for a couple of years.
Now, I won’t say that cutting taxes automatically helps the economy, nor that raising taxes causes recessions. At best, that’s way too simple. But whatever our favorite Kiwi commenter was trying to say with this graph, I don’t think it says what he thinks it says.
Pho seems to think that because tax rates were once much higher that that makes it acceptable–or ideal–to do so.
Joe Biden never said that paying higher taxes is patriotic. And, the few people on the planet who actually heard what he said and understood what he meant are sick and tired of all of this mindless blather from those who are just not smart enough to know better.
As other countries rebuilt, and challenged our manufacturing dominance, our economy started slowing down, and with the top rate at 70%, we were in a period of what was called “stagflation:” rampant inflation, high unemployment and very slow growth. We came out of it around the time that the Reagan tax cuts dramatically lowered the top rate.
Meanwhile, back in the real world…
“Therefore, while mainstream economists today might often attribute short periods of stagflation (not more than a few years) to adverse changes in supply, they would not accept this as an explanation of very prolonged stagflation. More prolonged stagflation would be explained as the effect of inappropriate government policies: excessive regulation of product markets and labor markets leading to long run stagnation, and excessive growth of the money supply leading to long run inflation.”
Guess what, Pho. I live in one of the least taxed states in the US, NH. We don’t have an income tax, or sales tax. We tax businesses at a nationally high rate but maintain a favorable business climate with our skilled population. NH ranks in the top ten of just about every measure for quality of life. And don’t say that it is because we live off the largesse of the Federal Government. I would even bet our standard of living and GINI index would favorably compare to that country you call home. The main reason for this is the population size and make up of the state. Kinda like all of the Scandanavian countries that rank at the top of the GINI index you always allude to. Now delve into your charts and graphs and come up with an explanation for why NH, with its low tax rates, is one of the best places on the entire globe to live.