Traden4Alpha
Senior Member
Posts: 6349
Joined: Sep 2002
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Mon May 10, 10 09:02 PM
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Quote
Originally posted by: Anthis
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The only downside is that increasing tax compliance is nearly identical to a increasing the tax rates in terms of transferring resources from the productive side of the economy to the less productive side of the economy.
Does this statement implies an axiom that employers/entrepreneurs/investors, are the productive side of the economy whereas their employees are not? If they are not, then why the hell do they hire them? if a business survives because its effective tax burden is low, legally or illegaly, then my view is that something is wrong with the business. Its the proverbial phrase "help me poor not to end like you". Its the parasitic entrepreneurship, that shouldnt be tolerated.
Interesting!
Assume that government wishes to maximize the NPV of tax revenues in real terms. Shouldn't the amount of tax be modulated by the expected future tax revenues conditional on extracting current tax revenues? Clearly, a government would not want to tax someone so severely that they lose their job or their company and thus generate zero or negative future government revenues. But what about letting some people keep more profits? Letting a highly-profitable, fast-growing business keep more of it's money will generate more production, employment, and profits in the long-term (and higher total taxes), than would extracting maximal taxes in the short-term.
The notion that tax rates must be higher on the rich to be fair seems built on two shaky assumptions that: 1) everyone has the same preference function for wealth (and thus the same disutility for paying taxes at a given level of wealth) and 2) that that the slope of that function declines with wealth. Thus, we justify progressive proportional taxes because we hypothesize that a rich person does feel the loss of $200,000 out of $2,000,000 as keenly as does a poor person feel the loss of $500 out of $10,000. But do all middle class citizens have the same wealth preference function?
One better measure of a person's wealth preference function might be the number of hours they work. People who work extremely hard presumably have a much higher preference for money than those who work less hard. Thus, the idle would have the highest tax rates and those that work 80+ hours/week would have lower tax rates. In fact, such an inverse relationship between taxes and labor-hours would encourage high-productivity people to work harder. For people in the same total level of pre-tax income, those ultra-productive people that can earn a comfortable living on only 20 hours/week would pay more taxes than those hard-working stiffs that earn the same money working two jobs. The ultra-productive wold need to work harder to re-equalize their after-tax income and the hard-workers might be able to take more time off and still have the same after-tax income.
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"It often happens that a player carries out a deep and complicated calculation, but fails to spot something elementary right at the first move." -- grandmaster Alexander Kotov --inscribed on gift chess sets given by Amaranth hedge fund.
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