Douwe Osinga's Blog: Why high taxes don't make people work less hard

Saturday, December 3, 2005

Why high taxes don't make people work less hard

In conservative circles and more and more outside of them, it seems to be a popular thesis that lowering taxes is good because it gives people more of incentive to work; they get to keep more of the money they make, so clearly they'll work more. Sounds plausible, but if you think about it, it is of course rubbish. The other way around is much more likely; the higher the taxes, the harder people work, all things equal.

In the end people don't care about taxes and all that. They only care about how much money they make. And when it comes to money, it is just like anything else. The more you have of it, the less extra happy another dollar will make you. If you are starving then you'll gladly work long long hours to make enough not to starve. If you are quite affluent already, you need quite big incentive to start working more (luckily enough are society comes build in with all kinds of tricks to make us work harder anyway).

So what happens if we increase taxes to say 90%? It just means that people have only one tenth of the money, so they are a lot poorer and will suddenly have to work again for a car instead of getting one anyway.

The problem of course is with the other side of equation; governments have a tendency to spend money more wasteful than average people. If you raise taxes you put more money in the hand of the government and if then that money is wasted, the economy suffers. But it is not the low taxes for the rich that make the rich work so much harder that in the end everybody profits.




Rockdale said...

In my case I pay for child care and it cost $20,000 a year. When my total dollars earned are taxed at a higher level it is a greater incentive for me to stay home and not pay the child care and the tax.
A lot of Americans with dual incomes will choose not to work when they can stay home with the kids. Since most of our taxes are due to dual income homes making over 250K. This will reduce our overall GDP. Also most high wage earners already work 65 + hours a week. You may not consider that if you're not part of it.
I do agree that taking away the value of work makes people either request more money for the work they do or they work harder to maintain their standard of living, but you’re not considering all the variables.

Just like ethanol in gas. The intention was to make a cleaner fuel, but instead they increased the cost of a food source and the pollution impact after production ( Harvesting)has been found to be even worse than regular gas.

Every extra dollar of discretionary money leads to someone else getting a job that grows GDP (Gross Domestic Product). We are the strongest most powerful, country in the world and losing footing fast. The more burden you put on a worker, or a business impacts the decisions they make. More importantly, they don't always make choices that lead in the direction you expect. Businesses will raise their prices, and if they can't raise their prices, they will cut costs, and if they can’t cut costs they will close a division. If they don't close the division they will move it or do something else that we have not taken into consideration.
Please comment with common sense.

Jim said...

Wow, this article is a complete waste of my time. There is a lot of emprical research showing that high taxes discourage work and income. There is not one serious empirical study that supports this view.

I can't believe anyone actually believes something this stupid. What a waste of time and thought.