Isn’t a dollar in taxes the same regardless of its origin? The answer is no.
According to standard economics, imposing a tax on income, whether a tax on individuals’ labor or on corporations’ earnings, diminishes those activities generating taxable income.
Think of it this way: In a world with no taxation, employers and workers settle on some market clearing wage that is beneficial to each. With an an income tax, a workers’ take home income must go down for the same hours worked. Unless firms raise wages to make up the difference, rational workers supply less after the tax is imposed. The tax reduces the amount of work, which reduces the goods and services available to consume.
Rik Hafer, special to the St. Louis Beacon, make this excellent point. I posted the article earlier, but this stuck out to me in particular as a really great point and one that I think gets glossed over in so many discussions.
