I saw this over at Marginal Revolution and just had to laugh.
Imagine the extreme case -- a 100% income tax. No matter how much you make, you actually receive nothing. Therefore, no one works. Result: 100% unemployment and GDP=0.
Obviously, smaller taxes will have less extreme effects. But increasing a tax can surely make a recession worse.
Posted by: Robert A. Book at Jul 7, 2009 12:47:48 PM
I love the world of economics. Imagine the extreme case--no taxes. Assuming we weren't taken over by some other country, we would have no army, a fragmented system of private toll roads, unlimited immigration, warlord armies fighting over territories. Kind of like Somalia. Obviously this proves the more taxes the better, and that taxes will make everything better.
Posted by: es32 at Jul 7, 2009 1:33:11 PM