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Pastimes : My House
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To: Poet who wrote (2185)10/5/2002 5:54:14 PM
From: TimF  Read Replies (1) of 7689
 
Poet, taxes dicourage things at the margin. Perhaps no level of tax dicourages all work other then 100% (and really that just enocurages tax cheating) but every increase in income tax or employment tax discourages working and/or paying others to work for you. I suspect if you could plot out the effect it would not be a smooth curve. At some point the discouraging effects of taxes would greatly accelerate. If the people and the economy where static other then the changes in tax rates and the direct effects from the tax rates then it could probably be calculated and plotted but people change all the time, and different people in different situations respond differently to different taxes at different times.

But for a sufficiently large sample (say the tax paying poulation of the United States) I would say any noticeable increase or decrease in taxes (at least a couple of percent) would have some effect on working and investing.

Its not just that it discourages work, it dicourages investments. If the after-tax expected returns on investments are less people might forgo the investments. And when they do invest higher taxes distort the investment away from what has the highest expected risk adjusted return (or the most efficient investment) to those that are effective tax shelters (legal or otherwise). Some may love to work (or invest) but the total amount invested will be lower and the average return will probably also be lower.

Eliminate taxes and you have anarchy because you need money to have a government. No government and you probably have no one keeping the peace, settling contract disputes, enforcing property rights, protecting from or deterring foreign invasion and doing the other things needed to have an efficient capitalist system develop. Just as rasing taxes will eventually lower government revenue if taken to far, lowering them to far (at least to 0) will reduce private sector wealth.

Tim
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