Work Incentives

It is interesting to note that in a recent British study, although over two-thirds of the male workers interviewed believed that as a general matter income taxes discouraged productive effort, less than one-third of them felt that taxes had affected their own personal effort adversely, and almost as many thought the effect was to induce them to work harder. When workers who had turned down an opportunity to work overtime were asked why they had done so, only 5 percent or less of them cited high taxes in reply. The National Coal Board, as a result of a number of studies of absenteeism in the British coal mines, concluded that "Tax considerations were . . . responsible for only one-third of 1 percent of the shifts lost." The Royal Commission itself reached the general conclusion that "the levels of taxation within present limits do not inhibit or induce any significant proportion of the working population to modify their attitudes to their working behavior." These findings are the more significant since the pressure of taxation is in general greater in Britain than in the United States, the income tax starts at lower levels of income and its rate structure rises more steeply, and British workers are provided with comprehensive low-cost medical and dental services which, alone, might be expected to push the influence of income taxes in the disincentive direction. In addition, a recent study shows that central government tax and expenditure programs have carried the redistribution of income further in Britain than in the United States.

Conclusions

Human motivation is a complex phenomenon no matter what the area of study. People who are keenly interested in their jobs are not likely to be much deterred by even significant changes in taxes. Strong personal ambitions may also push even very high income taxes into the background. Workers in a society that is alert and active and progressing rapidly may not be deterred in their efforts by taxation, whereas workers in a stagnant and disillusioned society might well be. Strong public support for what the Government is doing and a widespread belief that it is accomplishing its objectives in an efficient and honest manner may tend to impart favorable incentive aspects to taxation. Cultural and religious patterns, by imposing on the individual certain habits of thought and action, may govern his reactions to taxation of various kinds, and so on.

In spite of the complexities, we are by no means completely at sea. Careful empirical studies have been made and, incomplete as the results still are, it is encouraging to note that neither in Great Britain nor in the United States is there any convincing evidence that current high levels of taxation are seriously interfering with work incentives. There are, in fact, as indicated above, a number of good reasons for believing that considerably higher taxes could be sustained without injury to worker motivation should the need arise. Conversely, the social and economic need for strong work incentives does not, at the moment, make imperative a reduction in Government expenditures or an expansion in the role of excise and sales taxation in order to bring about a reduction in income taxes.