9-28-04 - 9


My brother is starting to get rich, and is becoming a conservative. Over labor day he was making the argument that higher taxes motivate people to work less; lower taxes motivate them to work more. I think this is basically a ridiculous argument, but it's very commonly used. The basic idea is of course true in the extreme, but in the real-world case of small changes in the tax rate, and a generally low tax rate, I don't think it applies. Now, the problem is, that it certainly IS true here in America - our tax code does discourage real work. The reason is not the taxes, but because of a number of complicated issues. For one thing, we keep raising and lowering taxes. That means if I find myself in a high tax bracket, say 35%, I should just take it easy for those years; if some new administration comes in, I might wind up with some new tax break which will now give me a much better return on my work time. Furthermore, because of all the loop-holes and tax breaks, it is often more profitable for me to spend my productivity working on lowering my taxes than it is to do real work. Now that is a disaster for the economy - you have a lot of smart people spending their time just working to avoid taxes. The way you fix that problem is not lowering taxes - it's eliminating all the complication and loop-holes in the law. Furthermore, lowering taxes really only encourages people who are not working at full capacity to work even harder. That is, the only problem with high taxes are when people who are already very rich decide that working half time is fine for them. Is that even a problem? Getting more work hours out of people has been a staple of the American economy, but it's leading to disaster (and Americans already work far more hours than any other 1st world country). It increases unemployment (because fewer people are working more hours each), and creates other massive strains on society (such as parents being out of the house full time).

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