Question

Why are there two different views on the effect of taxation on labor supply in the united​ states?

Answer 1

Further explanation

Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, plantations and gifts, as well as various costs. In 2010, taxes levied by the federal, state and municipal governments amounted to 24.8% of GDP. In the OECD, only Chile and Mexico are taxed less as part of their GDP.

However, taxes are far greater on labor income than on capital income. Different taxes and subsidies for various forms of income and expenditure can also be a form of indirect taxation on some activities above others. For example, individual spending on tertiary education can be said to be "taxed" at a high rate, compared to other forms of personal expenditure that are officially recognized as investments.

Taxes are imposed on the net income of individuals and companies by the federal government, most states, and some local governments. Residents and residents are taxed on income throughout the world and are allowed credit for foreign taxes. Taxable income is determined based on tax accounting rules, not financial accounting principles, and covers almost all income from any source. Most business expenses reduce taxable income, although limits apply to some expenses. Individuals are allowed to reduce taxable income with personal allowances and certain non-business expenses, including home mortgage interest, state and local taxes, charitable contributions, and medical costs and certain other costs incurred above a certain percentage of income. State rules for determining taxable income are often different from federal rules. State and local tax rates vary greatly by jurisdiction, from 0% to 13.30% of income, and many escape taxation. State taxes are generally treated as a deductible expense for federal tax calculations, although the 2017 tax law imposes a $ 10,000 limit on state and local tax deductions ("PNBL"), which raises effective tax rates for middle and high income earners in high tax rates.

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Details

Class: High School

Subject: Social Studies

Keywords : municipal governments, federal government

Answer 2

There are several reasons that cause the difference, such as:

- The effect of a tax on labor supply depends on the amount of deadweight loss created by the tax.  

Some argue that high tax will reduce labor supply since people couldn't afford to hire them. But this is heavily dependent on how much people decides to become lazy and choose to live off government welfare rather than actually working.

- It depends on the normative questions such as how much to tax or how much government intervention is necessary.

For example, the government can impose a high minimum wage in order to increase the number of labor and reduce it in order to decrease it.

- The effect of a tax on a labor supply depends on the elasticity of labor supply

If the country is experiencing a depression, labor supply tend to be inelastic. Regardless of how much taxes the government impose, there will still be many people trying to find jobs to make sure they can fulfill their basic needs.