41 sats \ 21 replies \ @Undisciplined OP 12 Sep \ parent \ on: Income Taxes Don't Disincentivize Work econ
I'm talking about the American context, here. You're talking about the downward sloping part of the Laffer Curve, which unfortunately is what's been the norm in Argentina.
I understand but the laffer curve is not a static graphic but an evolutionary graphic. It doesn't only shows where you are but where are you going next. So to be more strict we shouldn't say "this taxes current state desincentivize work" but "the taxes scheme disincentivizes work". And you are seeing that yourselves in the USA. You started on the left side of the graph and you are steadily evolving to the right.
You must not confuse what a tax scheme takes from you with what services expenses take from you. The more a tax scheme is closer to actual functioning services expenses, there's no practical conflict, yet there's an inconsistence: if it's a service you need, then you will pay for it just as any other service, it doesn't haves to be compulsory. Yet taxes are, and thus are poised to evolve as the laffer curve shows.
Taxes are a work-incentive killer because they are not based on need but on coercion.
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Ok, but we have more labor hours being worked as taxes have risen.
If income taxes were abolished, my expectation is that far more moms would stay home with their kids, people would retire earlier, and people would take more time off.
No doubt, there would be a group that offsets that to some extent, by taking more opportunities to earn more per hour.
The other way of saying this, that I think makes it pretty obvious, is that if people can afford to enjoy more leisure time that's what they'll do.
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Exactly "labor" hours, not actual work being done. What do you get from a poorly paid employee? More work? Or half-arse mediocre work? People that's well paid tends to be more incentivized to be more productive. Poorly paid people ends up getting leisure in the workplace itself.
And we are not accounting for the most important part:
If income taxes were abolished, my expectation is that far more moms would stay home with their kids, people would retire earlier, and people would take more time off.
Bear in mind that that implies that a whole new mass of state parasites will now need to be productive to earn money. So cutting taxes implies that now that money will have to come from actual work, thus compensating the work that others can now afford to not to do. Even more, the parasites previously maintained by those taxes had ZERO incentives to work. There's no way around, look at it from any angle and you will only find: taxes are work-incentive killers.
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You're just multiplying hypotheses.
It's true that people will work harder when they feel better compensated, but nothing you've said indicates that those effects entirely offset the productivity gains of additional hours. They're what we would expect to be second order effects, which are typically smaller than the first order effect. (Although, I guess these are actually 3rd and 2nd order effects.)
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I'm purposely multiplying hypotheses because it relativizes your claims, which also fall in second order categories. You're assuming that a tax increase mathematically gets offsetted by more work when in reality it makes the living standard more precarious and work hours less valuable. It's a lose-lose outcome.
But that was not my first order argument, that one was the second one: if you cut taxes, the only effect you get is a net increment in working hours because people living off of those taxes now have to integrate to the workforce. You have now caused a net increment in work incentive. In your reasoning you are neglecting from the equation the state itself, which is composed of a mass of people parasiting your work. Take that income from them and you now do get a first order effect consisting in a mass of millions of parasites having now to work full time to earn a living, offsetting the work others now don't have to do anymore: as of 2024 the USA haves a mass of 20 million people "working" for the state, and a mass of 40 million living off from welfare. That's a total of 60 million living from 100 million workers of the private sector, that means that people would need to work 60% more to earn what they would without having to maintain the other part. It's physically impossible for all of the 100 million workers to work 16hrs a day on average, so the net result is that you are getting less working ours from the able-working population, not more, in exchange of precarization, not same living standard. If you abolish taxes, you integrate that 60 million people into the private sector getting a 60% increment in working hours, not less hours.
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Your point is interesting, but it's beyond what I'm talking about.
In a comparative static analysis, we try to hold everything constant except for the factor in question. That lets us identify isolated effects.
If leisure is a normal good, then when people's budgets are reduced by increased taxes, they will respond by consuming less leisure. Ergo, they will work more.
Also, increased taxes don't necessitate increased government bureaucracy. The MMT weirdos advocate taxes just for the sake of fighting inflation, not for government revenue. Most spending in the US government isn't on bureaucracy, it's just transfer payments and debt service.
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If leisure is a normal good, then when people's budgets are reduced by increased taxes, they will respond by consuming less leisure. Ergo, they will work more.
I understand but again, be mindful that that haves a practical limit, it's not an unconstrained lineal tendency: the most you can humanly do is to increment your working schedule to be from monday to monday 12hs per day. Any increment beyond that will literally kill you, so taxes beyond that will progressively precarize the worker. By that point you are clearly living in North Korea so let's do as you said: let's fix things, so you are living in the USA, you have a minimum standard, so most you will do is to work up to 60hs a week in extreme cases. You will not work more than that so tax increments will start just eating your standard by that point, without you being able to work any more to compensate that. By that point working so much is meaningless so you start working less because you are not making it anyways, and that's what happens in real life.
Also, increased taxes don't necessitate increased government bureaucracy.
It doesn't haves to. You don't need explicit taxes when you have implicit taxes, AKA the infinite money machine. Explicit tax increments are not a way for the government to get financed but a way to coerce and control the population. The explicit tax is a laughable fraction of what the government amasses from emission and future emission AKA debt, which is what goes into maintaining the massive bureaucracy and high neo-feudal elite.
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All of that is correct, or near enough that there's no reason to quibble over it.
Again, though, the point of comparative statics is to think through what effects a particular change will have on a particular factor. This means we are starting from the current situation and modifying it in some marginal way. America is nowhere near the cases you're describing.
The purpose of this post was to point out that people aren't carefully thinking through their rhetoric on income taxes and they're saying contradictory things, and then explain what's going on economically.
This is caused by deprivation... Tax disincentivizes work, less work causes deprivation, and sometimes with deprivation, people choose to labour more hours to reduce the deprivation.
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It is caused by deprivation, but the channel is slightly different. The tax directly deprives the worker of resources, which drives them to work more hours.
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I think they also disincentivize work that would push you into a higher tax bracket.
For example in the UK you pay 20% up to around £50k and above that the 40% rate kicks in. If you're close to that threshold it's not particularly enticing to take on extra work knowing the government will take twice as much for it.
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Exactly.
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Does that work differently for married couples?
I'd expect to see jobs start offering more non-monetary compensation as you get closer to that threshold.
Our marginal tax rates increase much more smoothly than that, so most people don't give them a ton of thought.
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I'd expect to see jobs start offering more non-monetary compensation as you get closer to that threshold.
But it can't be the case, because the tax has to be paid anyways. Any non-monetary compensation that do not implies spending money means you get a hug and a kiss for working more for less.
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Not if it's things like childcare or other services you'd otherwise have to pay for. I don't know what that looks like in the UK, but employer benefits are huge here, precisely because they're tax advantaged.
Tax regimes are very different every where.
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childcare or other services you'd otherwise have to pay for.
You are paying for that, hence it's not non-monetary.
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Compensation in kind is called "non-monetary". You'll have to take that complaint to the Council of Economic Terminology.
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Conceded, but then what's the argument? You have to pay for everything anyways so, there's nothing they can actually offer in exchange of more precarization.
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I was just saying what I'd expect to see. I'm not saying it's good. Like all taxes it's dumb, destructive, and distortionary.