Women’s earnings should be taxed at a lower rate than men’s earnings. No, I’m not being completely sexist and going crazy feminist on you, there is a real economic rational behind my claim.
According to tax theory goods with more elastic supply curves should be taxed at a lower rate than goods with more inelastic supply curves due to the dead weight loss to society. In real person terms, that means that the same tax on two goods can lead to a greater loss to society with one good than the other.
Look at it like this:
I have two goods that I want to tax, apples and bananas. Let’s say that at the moment 10 apples and 10 bananas are being sold for $2 each. Conventional wisdom would say that if I tax apples at $1 each I will make $10, and if I tax bananas at $1 each I will make $10 each. So, what is the problem? Unfortunately for the government nothing is quite that tidy, changes in supply and demand will change the equilibrium.
For the sake of simplicity I’m going to assume that the demand curve is flat (that consumers will only pay $2 for apples and bananas regardless of how many they purchase), this isn’t usually the case but it will make the explanation a little easier.
So when I put a $1 tax on apples the price that producers receive drops from $2 to $1. At $1 producers are only willing to supply 9 apples, not ten. So, now only 9 apples are sold, which means that the government gets $9 in tax revenue, the producer gets $9 in sales, and there is another $2 that is not accounted for. Part of the loss is taken away when the producer doesn’t make the 10th apple, but $0.5 is lost.
Banana producers can choose to produce pineapples instead of bananas, so when there is a $1 tax on bananas the production drops to 8 bananas. This results in a $1 loss to society, twice the loss resulting from the apple tax. The difference in social loss is due to different changes in quantity due to a change in price (elasticity).
Labor is very similar. Men have few options aside from working so when their labor is taxed not many men exit the labor market. Women, on the other hand, have historically been the secondary wage earners and the primary homemakers. When wages drop, or taxes increase, more women will choose to exit the work force in order to stay home and run the house.
It is true that women’s labor supply is becoming less reactive to changes in wages, but it is still true that women’s supply of labor is more reactive than men’s, so women should be taxed less. It is for the good of society…
And I wouldn’t mind it either
But don’t worry guys, this would be an amazingly unpopular political recommendation so despite it’s economic validity it will never come to pass.
-m-
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