Do higher marginal tax rates generally reduce the incentive to work?
Correct Answer
Marginal tax rates, which are the rates that taxpayers pay on the next dollar of income they earn, reduce the incentive to work because they reduce the financial rewards of working. Economists broadly agree on this fact but disagree over the strength of the effect. Even prominent liberal economist Paul Krugman has written, "Any income tax system will tax away part of the gain an individual gets by moving up the income scale, reducing the incentive to earn more." One of the key factors that impact nations' standards of living is their average hours of work per person. During 2019, U.S. civilian residents aged 15 and over spent an average of 44% more time on leisure and sports than on paid work and work-related activities.
DocumentationEconomic Effects of TaxesU.S. Work Hours