I agree with the person who PM'd me: this thread turned into so much stupid. I actually think one or two people are trolling, so I won't even add anything into this.
Thank you for that, because I have one more thing to add.
According to economic theory, the tax level/work rate goes as such:
[complete horseshit graph]
With the maximum level at around 40%, it is believed.
I knew the ol'
Laffer curve would rear it's ugly head eventually. Story time. Arthur Laffer, godfather of Reaganomics, sketched out the concept on a napkin while tipsy which was taken up by a colleague, relating an idea as old as welfare. The basic idea has been repeated here a few times as well.
The idea is, all other factors being equal, as you take people's income in taxes and use it to provide social services to the non-working, everyone has a limit to how much they're willing to work compared to how much they're making, compared further to what they could get from the government dole. Eventually, if the tax rate goes high enough and the social services grow enough, raising the tax rate will actually cause the government's tax revenue to drop, as enough people reach their individual tolerance and decide to just stop working and collect welfare (note that this is talking about a hypothetical, all encompassing system, not any in particular). The important thing to remember is that in order for the drop-off to take place, work-capable people need to have an acceptable alternative to a working income. With that in mind, Laffer's mathematical theory puts it at around 40% of income.
The reality of the theory and it's practice is pretty different. Namely, ever since he broached his observation to some career Republican staffers, the idea has echoed throughout the American right, but with "if people are offered enough welfare in exchange for high enough taxes, eventually too many people will prefer the welfare to the reduced income and the government will lose money on tax increases" massively boiled down to the talking-point "lowering taxes raises tax revenue". Which brings us to the present day, with Teabagger Republican candidates like
Rick Barber, who apparently believe that if the income tax were 0% the government would make infinite money.
I mentioned Sweden earlier precisely because I figured this would come up eventually. Sweden is the one and only time in economic history that the Laffer Curve has been distinctly observed in a real economy. Sometime in the early 90's, when Sweden was offering above-poverty guaranteed living to every citizen, they raised the general income tax to about 65%, and noticed the deficit growing more than it was before under the 50%ish tax rate, and dropped it back down. So that's basically the line. Which was quite a shock to Arthur Laffer, who confided to my economics professor (no screaming lefty, as you can imagine) that he never thought it was really possible in the first place. (For the record, in the system as is, it's estimated that about 10% of Sweden's population who could work simply choose not to. I don't have an opinion on that, one way or another.)
tl;dr - The "40% tax is optimal" result of the Laffer theory is complete horseshit, only describing a situation where people have a reasonable alternative to not working, which has only been observed once in reality in a starkly-homogeneous nation that declared it impossible to be poor, and is used far too often in a vastly oversimplified form boiled down from a vastly oversimplified theory that doesn't hold water with the drunk economist who created it.
tl;dr ex tl;dr - The practical point at which the government stops making money by raising taxes is so far beyond the social reality of most countries that it's barely worth the napkin the theory was written on to discuss it.
Author
Topic: A Debate About Capitalism (Read 14749 times)