Editing Income tax (section)

==Economic and policy aspects==
{{main|Tax#Economic effects}}
{{expand section|date=August 2013}}
[[File:GDP per capita PPP vs PIT 2016.svg|thumb|[[Public finance|General government]] revenue, in % of GDP, from personal income taxes. For this data, the [[variance]] of GDP per capita with purchasing power parity (PPP) is explained in 27% by tax revenue]]

Multiple conflicting theories have been proposed regarding the economic impact of income taxes.{{efn|See, e.g., references in {{slink|Tax|Economic effects}}, {{slink|Economics|Macroeconomics}}, [[Fiscal policy]]}} Income taxes are widely viewed as a [[progressive tax]] (the incidence of tax increases as income increases).

Some studies have suggested that an income tax does not have much effect on the numbers of hours worked.<ref>Killingsworth 1983 and Pencavel 1986{{Full citation needed|date=June 2024}}</ref>

===Criticisms===
[[Tax avoidance]] strategies and loopholes tend to emerge within income tax codes. They get created when taxpayers find legal methods to avoid paying taxes. [[Lawmakers]] then attempt to close the loopholes with additional legislation. That leads to a [[vicious cycle]] of ever more complex avoidance strategies and legislation.<ref>{{cite web |url=https://www.taxpolicycenter.org/briefing-book/why-are-taxes-so-complicated  |title=Why are taxes so complicated? |date=May 2020 |publisher=Tax Policy Center |access-date=August 19, 2013}}</ref> The vicious cycle tends to benefit large corporations and wealthy individuals that can afford the professional fees that come with ever more sophisticated tax planning,<ref>{{cite news |last=Drucker |first=Jesse |date=April 18, 2012 |title=How to Pay No Taxes: 10 Strategies Used by the Rich |url=https://www.bloomberg.com/news/articles/2012-04-17/how-to-pay-no-taxes-10-strategies-used-by-the-rich |url-access=subscription |publisher=Bloomberg |access-date=August 19, 2013}}</ref> thus challenging the notion that even a marginal income tax system can be properly called progressive.

The higher costs to labour and capital imposed by income tax causes [[deadweight loss|dead weight loss]] in an economy, being the loss of economic activity from people deciding not to invest capital or use time productively because of the burden that tax would impose on those activities. There is also a loss from individuals and professional advisors devoting time to tax-avoiding behaviour instead of economically productive activities.<ref>{{cite web |url=https://www.investopedia.com/terms/d/deadweight-loss-of-taxation.asp |title=Deadweight Loss Of Taxation |last=Kagan |first=Julia |date=March 15, 2022 |publisher=Investopedia |access-date=August 19, 2013}}</ref>

=== Bracket creep ===
''[[Bracket creep]]'' is usually defined as the process by which [[inflation]] pushes wages and salaries into higher [[tax bracket]]s, leading to [[fiscal drag]].<ref name="IFO">{{cite web |title=Hidden tax increases - the extra tax burden of the bracket creep and the expected impact of income tax rates 'on wheels' on tax reliefs |url=https://www.ifo.de/en/node/9346 |website=www.ifo.de |access-date=November 9, 2021 |language=en}}</ref><ref>{{cite journal |last1=Bohanon |first1=Cecil E. |title=The tax-price implications of bracket-creep |journal=National Tax Journal |date=December 1, 1983 |volume=36 |issue=4 |pages=535–538 |doi=10.1086/NTJ41862549 |s2cid=232213656 |url=https://www.journals.uchicago.edu/doi/abs/10.1086/NTJ41862549?journalCode=ntj |access-date=November 9, 2021 |issn=0028-0283}}</ref><ref>{{Cite web |last= |first= |date=September 29, 2021 |title=Bracket creep and its fiscal impact |url=https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Budget_explainers/Bracket_creep |access-date=September 16, 2022 |publisher=Parliament of Australia |language=en-AU}}</ref> However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate will increase.

Most [[progressive tax|progressive tax systems]] are not adjusted for inflation. As wages and salaries rise in nominal terms under the influence of inflation they become more highly taxed, even though in real terms the value of the wages and salaries has not increased at all. The net effect is that in real terms taxes rise unless the tax rates or brackets are adjusted to compensate.