taxes, incentive, and Dumbledore

This is an argument I always hear on conservative radio: “The more you tax people, the less incentive you give them to work. And when you tax the higher income people more, you are basically punishing them for working hard! Think about it. How hard would you bother to work if you know that 90% of your income is going to taxes?”

I have two problems with this “The more we tax the less hard people will work” type of argument.

1) It implicitly assumes that the amount of money you earn is a fixed function of how hard you work. The fact is that, in a free market, wages are adjusted by employers to take taxes into account.

For example: Dumbledore’s salary is 50,000 galleons per year. He pays 50% in taxes, and so takes home 25,000 galleons each year. But if the Ministry of Magic increased his tax rate to 75%, you better believe Hogwarts would increase his salary to 100,000 galleons in order to keep him there.

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2) It is implicitly assumed that salaries increase linearly with work. But for a large number of reasons — some based in corruption, some not — this is not the case.

I seriously doubt anyone would argue that the guy who makes $100 million per year is really 100 times more skilled, or works 100 times harder, than the guy who makes $1 million per year.



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