6_Frank_HiddenTax - Reprints Economic View In Private Pay an Impli This copy is for your personal noncommercial use only You can order

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Reprints This copy is for your personal, noncommercial use only. You can order presentation-ready copies for distribution to your colleagues, clients or customers here or use the "Reprints" tool that appears next to any article. Visit www.nytreprints.com for samples and additional information. Order a reprint of this article now. April 23, 2010 The Tax Hiding in Your Paycheck By ROBERT H. FRANK EVERY year at tax time, libertarians indignantly denounce government income transfers from rich to poor. Society’s income distribution, they argue, should reflect as closely as possible what people would earn in unregulated private markets. When critics on the left counter that income transfers are required in the name of social justice, libertarians yawn — and the debate goes nowhere. There is a more fruitful way to look at the issue. Suppose, for the sake of discussion, that we grant the libertarian premise that private pay systems provide the best ethical template for society’s income distribution. As closer scrutiny of that premise will make clear, the libertarian denunciation of income transfers fails on its own terms. The main problem is that private pay patterns embody an implicit tax that is actually far more progressive than the federal income tax. To understand why, first consider some background about the way these patterns work. Economic theory holds that in competitive labor markets, workers are paid the market value of
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This note was uploaded on 01/19/2011 for the course ECON ECON 440 taught by Professor Kristinebrown during the Fall '10 term at University of Illinois at Urbana–Champaign.

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6_Frank_HiddenTax - Reprints Economic View In Private Pay an Impli This copy is for your personal noncommercial use only You can order

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