Investors shift money from taxable investments (such as stocks and bonds) to non-taxable ones (such as municipal bonds). All investors, from millionaires to fixed income retirees, seek to maximize their annual investment income. Tax-free investments like munis naturally pay a lower rate of return. Taxable investments like corporate bonds, pay a higher rate. Since the government taxes a chunk out of taxable income, the after-tax return changes in response to a change in rates. For example, say a $1000 corporate bond pays 10 percent, leading to a $100 interest payment. A marginal tax rate of 30% means the after-tax return is $70 ($100-$30 tax). If the municipal bond pays a rate of 6 percent, the after-tax return is $60 ($1000*6%). So because $70 is higher than $60, the investor stays with the corporate bond. Now assume the marginal tax rate is raised to 50%, the after-tax return of the corporate bond is now $50 ($100-$50 tax). Since the municipal bond now pays $10 more, investors are likely to shift money from the corporate bond to the non-taxable muni. Consequently, that first factor, TAXABLE INCOME, drops to $0, and the tax revenue from the bond is completely eliminated. Sure, this is a simplified example, but remember investors nowadays are more sophisticated, especially wealthy individuals that can hire expert accountants and lawyers to squeeze out every penny of income. Computers are making this easier every day.<quoted text>
mock the source because you can't dispute the facts.
just the usual right wing nutjob response to facts.
There is less incentive to work extra hours given the smaller after-tax wage rate, meaning taxable wages decrease. While almost everyone has to work to some extent to pay the bills, the decision to work a second job and/or overtime hours is often one of choice. Do you really need the extra income enough to give up much of your leisure and relaxation time? At $100 per hour, you might say "No doubt"! At $50, probably yes. At $25, maybe. At $10, no way. Everyone has their threshold where the extra money just isn't worth it. By raising tax rates, the hourly rate of take-home pay drops, pushing some below their acceptable threshold. The threshold exists at all levels, from the factory worker that declines taking an additional shift, to the doctor who sees fewer patients. The bottom line is that their is less productivity and taxable income.