Scream Phoenix

Supply-side economics provided the political and theoretical foundation for a remarkable number of tax cuts in the United States and other countries during the eighties. Supply-side economics stresses the impact of tax rates on the incentives for people to produce and to use resources efficiently. A person’s marginal tax rate—the tax rate she pays on an additional dollar of income—determines the breakdown between taxes, on the one hand, and income available for personal use, on the other. Since they directly affect the incentive of people to work, to save and invest, and to avoid and evade taxes, marginal tax rates are central to supply-side analysis.An increase in marginal tax rates reduces the share of additional income that earners are permitted to keep. This adversely affects output for two major reasons. First, the higher marginal rates reduce the payoff that people derive from work and from other taxable productive activities. When people are prohibited from reaping much of what they sow, they will sow more sparingly. Thus, when marginal tax rates rise, some people, those with working spouses for example, will opt out of the labor force. Others will decide to take more vacation time, retire earlier, or forgo overtime opportunities. Still others will decide to forgo promising but risky business opportunities. These reductions in productive effort shrink the effective supply of resources and thereby retard output.  MORE HERE……………………