[How would high marginal tax rates discourage work]
There's also the concept of "Deadweight loss": Inefficient allocation of resources.
The usual story involves a rich man mowing his own lawn. When asked why he didn't pay someone $50 to do it, he answered that he'd have to earn $500 to pay $50, and for $500, he'd mow his own lawn. (Marginal tax rates were higher when I first heard this.)
He's still working, but society has lost something by having him work on something he's not as good at. If I can pay you to do something you do relatively better than I, and vice-versa, we both gain. But the higher marginal tax rates are, the less sense that makes.
How much does this matter? It's arguable, but I think it's significant, especially at higher tax rates.
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There's also the concept of "Deadweight loss": Inefficient allocation of resources.
The usual story involves a rich man mowing his own lawn. When asked why he didn't pay someone $50 to do it, he answered that he'd have to earn $500 to pay $50, and for $500, he'd mow his own lawn. (Marginal tax rates were higher when I first heard this.)
He's still working, but society has lost something by having him work on something he's not as good at. If I can pay you to do something you do relatively better than I, and vice-versa, we both gain. But the higher marginal tax rates are, the less sense that makes.
How much does this matter? It's arguable, but I think it's significant, especially at higher tax rates.