Saturday, October 24, 2009

Taxes and Economic Growth Response

Great article, but you fail to include any counterarguments.

1. Remember a crucial counterpoint here:

I can find reverse situation. Rather than working based on reward, individual actors may work to achieve a set income level (to provide for their family). If taxes go up, they may work more to provide for their family (if unhappily).

A large increase in salary (functionally equivalent to a tax break) may lead workers to reduce hours and enjoy fruits of their labor (given assumptions about the diminishing marginal utility to wealth).

Counterintuitive but actual true of human behavior.

2. Statistically, we have trouble finding such a relationship between taxes and growth. This should be troubling. Some suggest actual level at which the Laffer curve turns is around 70-80% if you look at states like Sweden.

State spending also has a lower marginal propensity to import than individuals and so in an open trading system, government spending has more bang for economy.

3. taxes that are used to provide services you might otherwise purchase (such as healthcare or education) are likely to be inefficient but are simply using the government as an intermediary for spending.

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