Macro-economic scenarios (4)

October 19, 2010

Refer to earlier posts for background: 1, 2, 3.

Baseline + taxes scenario

Assume that a certain percentage of every person’s income (in calories) is extracted by the authorities as taxes. If a person’s income is the bare minimum for existence, then their income must be increased by their employer to cover the taxed amount, if they are to continue in their jobs. If a person’s wages are beyond bare subsistence, which is almost always the case to some extent, in the sense that some additional privation can always be imagined, then some partition of the cost of taxes between the employer and the employed would have to be achieved, if the employment relationship is to be continued. In the short term, at least, it is probable that a large part of the cost of the taxes directly deducted from a person’s income would be carried by that same person.

Applying taxation to the baseline scenario, ignoring the short term effect, and assuming that farmers work at bare subsistence, the cost of all taxes fall on the landowner. Under taxation scenario A there are three tax brackets – all income up to 1500 calories per day is not taxed, income between 1500 cpd and 2500 cpd is taxed at 10%, while all income above 2500 cpd is taxed at 90%. Thus, each farmer costs the landowner 2050 cpd, leaving 50 cpd of surplus.
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