Free Republic
Browse · Search
News/Activism
Topics · Post Article

To: Paloma_55

"I agree but it doesn't really need to be optimum all the time. "

Excellent point! This is often overlooked.

Analagously, I don't need to optimize my income (hours worked vs. money earned). If I make enough to live well and save for my retirement and I'm happy with what I have, I shouldn't need to work more hours or push for a raise, should I? Similarly, if the government has enough to operate on, it shouldn't always be looking for the next buck.


28 posted on 12/31/2005 9:44:05 AM PST by generally
[ Post Reply | Private Reply | To 10 | View Replies ]


To: generally
You are really hitting a key issue here...the idea of manipulating the tax rates based on economic expansion sounds good, but in practice, politicians HATE cutting taxes...and can't be relied on to do so no matter what they say. Recall that the max rate was to be 28% when all those deductions went away...but one the deductions were gone, the rates went back up. The other side of this issue is an economic phenomenon known as the backward bending supply curve of labor. Labor is the only thing which will reduce the available supply if either (a)one's income is so large as to make the laborer reduce work time to enjoy the benefits of his labor, or (b) which will also decline on the part of the most productive if the incentives are diminished. If you increase taxes (reduce incentives) you also make the role of the risk-taker (read:job creator) less attractive, and he will withdraw both labor and capital.

The Laffer Curve establishes that there is an optimal tax rate, which can be discovered through trial and error, and once discovered, should be adopted permanently.

Here is a link to see the labor supply curve:

http://www.pinkmonkey.com/studyguides/subjects/eco/chap14/e1414301.asp
39 posted on 12/31/2005 10:24:05 AM PST by Chuck_101 (Lower rates equal higher revenues)
[ Post Reply | Private Reply | To 28 | View Replies ]

Free Republic
Browse · Search
News/Activism
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson