英语论文网

ve citizens to other countries where taxes are lower.These adjustments and others like them will shrink the effective supply of resources, and therefore will shrink output. Second, high marginal tax rates encourage tax-shelter investments and other forms of tax avoidance. This is inefficient. If, for example, a one-dollar item is tax deductible and the individual has a marginal tax of 40 percent, he will buy the item if it is worth more than sixty cents to him because the true cost to him is only sixty cents. Yet the one-dollar price reflects the value of resources given up to produce the item. High marginal tax rates, therefore, cause an item with a cost of one dollar to be used by someone who values it less than one dollar. Taxpayers facing high marginal tax rates will spend on pleasurable, tax-deductible items such as plush offices, professional conferences held in favorite vacation spots, and various fringe benefits a company luxury automobile, business entertainment, and a company retirement. Real output is less than its potential because resources are wasted producing goods that are valued less than their cost of production.

The supply-side economic policy of cutting high marginal tax rates, therefore, should be viewed as a long-run strategy to enhance growth rather than a short-run tool to end recession. Changing market incentives to increase the amount of labor supplied or to move resources out of tax-motivated investments and into higher-yield activities takes time. The full positive effects of lower marginal tax rates are not observed until labor and capital markets have time to adjust fully to the new incentive structure. Because marginal tax rates affect real output, they also affect government revenue. An increase in marginal tax rates shrinks the tax base, both by discouraging work effort and by encouraging tax avoidance and even tax evasion. This shrinkage necessarily means that an increase in tax rates leads to a less than proportional increase in tax revenues. Indeed, economist Arthur Lifer (of “Lifer curve” fame) popularized the notion that higher tax rates may actually cause the tax base to shrink so much that tax revenues will decline, and that a cut in tax rates may increase the tax base so much that tax revenues increase. How likely is this inverse relationship between tax rates and tax revenues? It is more likely in the long run when people have had a long time to adjust. It is also more likely when marginal tax rates are high, but less likely when rates are low. Imagine a taxpayer in a 75 percent tax bracket who earns $300,000 a year. Assume for simplicity that the 75 percent tax rate applies to all his income. Then the government collects $225,000 in tax revenue from this person. Now the government cuts tax rates by one-third, from 75 percent to 50 percent. After the tax cut, this taxpayer gets to keep $50, rather than $25, of every $100, a 100 percent increase in the incentive to earn. If this doubling of the incentive to earn causes him to earn 50 percent more, or $450,000, then the government will get the same revenue as before. If it causes him to earn more than $450,000, the government gets more revenue. Now consider a taxpayer paying a tax rate of 15 percent on all his income. The same 33 percent rate reduction cuts his rate from 15 percent to 10 percent. Here, take-home pay per $100 of additional earnings will rise from $85 to $90, only a 5.9 percent increase in the incentiv本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。