Policy makers put a lot of thought into how taxes affect people's incentives to work, to consume, and to invest. As far as I can tell, policy makers put less thought into looking at whether people actually understand the way that their taxes work. Anecdotal evidence suggests that people are remarkably misinformed about how mant taxes actually work, so one has to wonder what effect this has on the incentives that the taxes are thought to create.
As a starting point, I've put together a bit of a primer on different ways to categorize taxes and how different taxes work, so hopefully this is a step in the right direction.
Comments
That’s all well and good and I see that case that’s being made, what I didn’t see is any mention that each successive tier of taxation, insofar and there is an increase from the previous one, renders each dollar earned less valuable.
In the $250,010 scenario, assuming for simplicities that the $250,000 is taxed at 25% and the $10 is taxed at 35%, would mean that the incentive to earn more profit is reduced. If another hours work would bring in $100 of additional profit, after taxes that hours work is only worth $65, as opposed to the $75 Joe Blow was earning per hour when he was under $250,000.
I’m just saying, increasing taxes on any bracket may not reduce overall profit, but it does reduce the average value of an hours work.
If a small business has a profit before an increase in the marginal rate (over 250,000), the company will still have a profit after the increase in the marginal rate, albiet a smaller profit.
However, the higher marginal rate will make it less attractive or even prohibitive for expansion. For additional investments in capital assets and the associated risk there must be sufficient additional after tax income to provide a reasonable return on investment (ROI).
Also, in a profit maximizing firm, the firm will produce at MR=MC. If a cost such a taxes increases, an increase in MC would follow. Would it not follow that firm might produce at a lower level?
i think prices can neverbe same in two countries since behaviourof each countey depends on so many different things culture religion education level other then which r mentioned in the theory