"Although disputes over the effects of tax policy are often intertwined with and overshadoewed by philosophical disagreements about the proper size and scope of government, assessing the impact of tax rate changes on economic perormance and on revenues is ultimately an empirical rathan ideological exercise."
The quotation above is from Aaron Hedlund's new report, an exploration of what happens when tax rates change. Among the findings:
- The effect of tax policy on the size of the tax base can be as important as the actual tax rate.
- Looking only at the impact of taxes on the incentives of primary earners yields can lead to misleading projections about the revenue a tax hike will generate; a household's secondary income earners, as well as those considering entrepreneurship or investments in their own human capital, can be more sensitive to tax rate changes than primary earners.
Click on the link below to read the entire essay.