June 29, 2012

Explaining why tax rates matter

Leftist politicians often argue that tax rates don't matter or at least ignore the implications. Here's a parable that might, perhaps, help some to grasp the concept.

Suppose there is a remote island with just two inhabitants, Joe and Bob. The government of our island offers Joe and Bob a choice: they can either work and earn $40,000 per year creating goods for export or the goverment will assure them of a "sustainable income" of $20,000 per year. Joe, being a go-getter, opts to create goods and live more comfortably on the higher income. Bob would prefer to stay home and play video games knowing that he can "get by" on $20k. The government has to balance its books (in our parable, there is no China from whom to borrow funds). In order to do so, it imposes a 50% income tax. Seeing this, if you were Joe, how long would you continue to work hard (or work at all)?

Now, try the same thought experiment start with a 10% tax and going up to 80% in increments.

One might think of this as the elasticity of labor, but that concept would leave our Lefist friends in the dust.

Nanny State Posted by Boulder Refugee at June 29, 2012 3:16 PM

Joe might say, "I'm leaving it as I found it. Take it. It's yours."

Herein lies the brilliance in allowing Obamacare to stand as a new tax. And a tax on whom? The uninsured! Gosh, those Democrats sure know how to look out for the little guy.

Posted by: johngalt at June 29, 2012 3:51 PM

"Of course, we'll subsidize it for those who can't afford it." So, we'll be using tax dollars to pay a tax. That's an interesting recursive loop.

Using that logic, I'm going to pay myself $1 million to mow the lawn. Then, I'll use that money to pay myself to do it again. Now, I have two million...

Posted by: Boulder Refugee at June 29, 2012 4:11 PM

The part I call "brilliance" is where uninsured voters are told, "If you vote for my opponent he'll give you a government insurance ID card but he'll also withold a $2000 tax from your paycheck each year."

Posted by: johngalt at June 29, 2012 5:00 PM | What do you think? [3]