ABSTRACT
The effect of taxes on labor supply is an important issue in economic theory, econometrics, and public finance. Since the largest share of federal revenue is derived from individual income taxes, corporate income taxes, and Social Security taxes, the impact of federal taxes on labor supply is certainly significant. Contrary to popular opinion, economic theory in the absence of empirical evidence cannot predict whether cutting taxes will increase the economy’s supply of labor. The traditional view of dividend taxation is that the US tax system double-taxes the returns from equity-financed investments, first at the corporate level and then through personal taxes on dividend income. The financing of the Social Security program is through earmarked payroll taxes paid by employees, employers, and the self-employed on covered employment. The tax-transfer model separates the program into two distinct aspects: benefit transfers or expenditures and payroll taxes or revenues.
