The West excluding the U.S. may be headed for economic stagnation if the current socio-political economic trends continue.  The massive money printing exercises carried out since the GFC would have sent us into inflationary spirals if it weren’t for declining wholesale manufacturing costs coming out of China, which had been anointed world supplier writ large.  This is the good side of globalisation.  The bad side of globalisation is well known and has been much analysed by counterargument forces.  The encroachment of Big Government into our lives is hard to miss, but what we have noticed is mainly the quality-of-life deterioration, not yet the financial aspects, since Australia has continued to be blessed with mineral exports and the fading benefits of the 1980s-90s economic reform programs.  Both are at risk, due to China’s increasing decoupling from the U.S. (and soon E.U.) consumer market and Australia’s poor public policy performance.  We haven’t touched on serious reform for decades and have continued to pile on costs to the economy in self-indulgent manners along the line of the U.K. and Canada.  All these three economies are in the same boat of flat if not declining real term living standards.

Bloated and Misspent

The size of Australia’s public sector has gone from bad to worse.  As of July 2024, it employed approx. 2,517,900 people according to the ABS, in a total employed workforce of 14,469,600, or 17.4%, varying by state (38% in the Australian Capital Territory, 17% in New South Wales), with public sector employment growing 3.6% in the year to June 2024 and making up 24% of all new jobs created between FY2021 and FY2025.  We are producing a fake economy through our own taxes.

Estimating the public sector’s contribution to GDP is less straightforward due to varying definitions, eg, whether it includes only government spending or also state-owned enterprises and the army of contractors relying mainly on government income.  The metric that analysts consider reliable is the total government final consumption expenditure as a percentage of GDP.  In June quarter 2025, general government consumption expenditure was reported to be 20.8% of GDP, based on ABS data showing this category contributing 0.2 percentage points to a 0.6% GDP growth.  A broader measure, including total public sector spending (general government and public corporations), was reported at 27.3% of GDP in 2023-24.  This figure includes employee compensation, operational costs, and some capital formation but excludes the full economic output of public corporations.  Forecasts suggest government expenditure rise to 30% by 2029 based on proposed policy changes.  And if we include the full output of public corporations, the ratio could reach 40% of GDP.

Compare that to Australia at Federation in 1901, the new Federal budget was only about $6.35m (2% of GDP), built from transferred colonial functions (customs, posts, defence). The States’ budgets were an order of magnitude larger – each around 13-22% of their GDP. Thus, government in Australia at Federation was still predominantly State-based, with the Commonwealth a small coordinating and defence/tariff body, with a total combined budget of around 20% for a spread-thin population with vast distances to cover for communication and coordination.  Australia should have a total taxation system of 10-15% of GDP today, allowing for all the modern efficiencies to take hold while taking on more social welfare functions.  At most, the total tax take from all levels of government should not pass 20% of GDP, at balanced budgets.  This means half of our entire government workforce is not needed, and up to 1.2 million public sector employees could have be redeployed to the private sector for allocative efficiency.

Current figures are still somewhat lower than self-styled communist China’s proportions, but they point to Australia facing similar structural problems as China.  The percentage of China’s population that belongs to the CCP based on the most recent Party membership figures is 100.27 million at end 2024, or 7.1% of a mid-2025 population estimate of 1.416 billion.  The estimated size of the public sector in China is around 56 million employees, based on the latest available data for urban state-owned units in 2021 (the most recent detailed breakdown available, with figures likely similar in subsequent years due to relative stability in public sector staffing).  This figure encompasses government agencies, public institutions (such as schools and hospitals), and state-owned enterprises.  Some broader estimates that include state-controlled firms in mixed-ownership structures suggest up to 23-28% of the workforce (169-205 million people), with these varying by definition and source.

Estimating China’s public sector as a percentage of GDP depends on how we define “public sector.”  The most direct measure is government spending as a percentage of GDP, which captures general government final consumption and expenditure.  2023 data show this to be 17.2% of GDP, a lower ratio than Australia’s.  This figure includes employee compensation and purchases of goods and services but excludes military capital formation.  If we broaden the definition to including the economic output of state-owned enterprises (SOEs), the picture changes dramatically.  In 2020, SOEs accounted for about 40% of China’s GDP.  This includes their contribution to market capitalisation and economic activity, though the private sector (including mixed-ownership enterprises) contributed roughly 60% of GDP in the same period.  Combining government spending with SOE contributions suggests China’s public sector share of GDP can be 45-50%.  More recent forecasts indicate that the ratio of government expenditure to GDP is expected to rise, reaching 35.43% by 2029.  This projection includes total government expense and net acquisition of nonfinancial assets, suggesting a growing public sector footprint.  However, this still excludes the full economic weight of SOEs, which are harder to pin down due to mixed ownership and varying degrees of state control.  The challenge here is that China’s public sector isn’t just government spending – SOEs play a big role, and their influence isn’t fully captured in standard metrics.  Data inconsistencies and the opacity of state involvement in mixed enterprises make precise estimates tough.  Including military capital formation – which is based on much higher fusion than in the West – likely confirm the total public sector to be 50-55% of GDP.

In terms of general government final consumption and expenditure, it can be said that Australia and China are on par.  It’s only inclusion of pervasive Chinese SOE activity growth – in the last decade because of Xi’s power base building and collapsing private sector activity such as experienced in the real estate sector, that China’s public sector intrusion skyrocketed.  This is a warning bell for Australia that the more government inserts into the economy the more exposed to lack of genuine market the private sector faces.  A private sector industry collapse could push the public sector to GDP ratio up markedly and quickly.

On the flip side, small businesses in Australia employ 42% of the private workforce.  We must seek to expand small businesses to take advantage of AI development and enrichment of our society.  The monolith disease has caught all countries in the West, not just Australia.  Integration of China in Western supply chains led to mutual contamination of thoughts and practices, but the problem has been exacerbated by government and government-owned media and state-owned enterprises spreading the rent seeking diseases of monolithism.  We are recreating the PRC’s public-private sector fusion confusion in Australia.

The U.S. electorate has come to this realisation and elected a government that is going against the trend.  No-one can underestimate this extremely difficult slog, but the Trump administration is doing everything possible to return the U.S. to an even keel, from the excesses of the unconstrained absolutists.  It will not be easy as institutional capture has been going on for a long time and lawfare has been and is being deployed at every turn to stop the progress, turning procedural fairness as a democracy-protecting mechanism into a democracy injuring weapon.  But at least the voters saw through that, gave Trump the trifecta – House, Senate and the White House, although more accurately, Congress, White House and Supreme Court), and the popular vote in the 2024 election.  It remains to be seen how long the Republican Party can hold on to this unprecedented position considering the tendency of voters to hedge their bets in a democracy.

In Australia, we haven’t even begun to question the giant grab by the federal government in taxation.  Unless we set a path to reducing total government spending to below 20% of GDP, to release resources to the private sector to utilise to improve total factor productivity, we will be facing a severe “recession we have to have”, so that the system could remove the regulatory cobwebs for private enterprise to create wealth again.  Without this resurgence in SME, we will have problems sustaining the current social welfare safety net.

Social Welfare Spending

Australian Government spending on social security and welfare has risen significantly as a share of GDP in the last seventy years.  As a result, taxation pressure has also gone up.  Some of the rises in recurrent spending have been due to long-term demographic factors such as aged care with longer life expectancy.  The 1960s and 1970s brought large social changes, such as increased participation of women in the labour market that was accompanied by childcare and other forms of subsidies.  Among the largest spending increases in recent years is the National Disability Insurance Scheme (NDIS).

Most of the increasing tax revenue has been met through bracket creep.  Wage inflation meant that the lack of indexation of personal income tax thresholds pushed individuals into higher tax brackets.  Total personal income tax revenue has doubled as a portion of GDP since the 1960s, from 6% to 12%, despite there being only 2 increases to statutory tax rates in the late 1960s.  Bracket creep is the silent tax rate rises in the Australian system.

The ATO (Taxation Statistics, 2024-25 Budget), ABS and PBO analysis shows that the aggregate average personal income tax rate in Australia has increased from around 12% in1954-55 to 25% today and is projected to reach 28% by 2034-44.  This trajectory is driven by bracket creep in the decades up to the reform period of the late 1980s.  The rate stabilised in the 21-25% band until now, passing through events like the Medicare levy increases, GST introduction, mining boom tax cuts and stage 1-2 tax cuts.  There is no reason whatsoever why the rate should head up again towards the 30% mark, except for all the unwarranted government spending discussed.  There has been strong growth in the non-core components of public enterprises no matter where we look at.  The two big semi-public good sectors of health and education warrant a complete review of use of funds and privatisation is long overdue for pointless government shareholding in or ownership of Qantas, ABC, SBS and the likes.

The cost of complying with mounting regulations must have driven hospitals and schools and universities to suffer disproportional budget expansion at these institutions.  If that’s the case, we need the Productivity Commission and ACCC to look hard at these entities by themselves and as part of a competitive industry.

Education

The summary of cost trends at universities for the 2010-23 period does raise a key issue of excessive growth in non-academic expenditures. Student enrolments grew 50% overall from 800,000 to 1.2 million headcount, driven by domestic expansion (up 40%) and international students (up 100% pre-Covid-19).  Equivalent Full-Time Student Load (EFTSL, a better productivity measure) increased from 600,000 to 900,000, which is on par with headcount.

Total non-Capital Opex rose 60-70% (from $18-20 billion to $30-32 billion), outpacing enrolments due to wage inflation (14% rise in staff costs in 2019-23) and non-academic growth.  Academic Opex grew 55% (aligned with enrolments but lagged per-student due to efficiency drives).  Non-Academic Opex surged 75-80%, outpacing both enrolments (+50%) and Academic Opex (+55%).  This includes a 6.7% cut in professional staff during Covid-19 (2020-21) but rebound with higher management roles (up 20-30% in senior administration since 2010).  Per-student non-academic costs rose 20-25% versus 5% for academic.  This gaping discrepancy between Academic and Non-Academic Opex per EFTLS is clearly attributable to compliance burdens and “managerialism” (more executives to look after unproductive areas imposed on by large government).  The cost of international recruitment shouldn’t change as it should align with foreign student EFTLS.  During Covid-19, total expenses dipped only 5% (2020-21) due to staff cuts while enrolments fell 10-15%.

The compliance cost component highlights the institutional capture by large government and the institutions themselves to keep university staff aligned with their ideology.  In the U.S., studies have shown a similar trend in non-academic staff expenditure surge compared to student enrolment numbers, and that 60-100% of academic staff were on the left side of politics.  The Trump administration is withholding federal funding to some of the ivy-league colleges in a protracted disagreement over their practices.  The abnormal imbalance in ideological leaning at universities is not surprising when testing the students on non-STEM knowledge.  Most regurgitate “socialism” without any comprehension of the basic tenets of the “ism”.  Social engineering and intimidation in schools dumb down all students as they try to keep quiet to get the grades, along the way losing critical thinking ability.

The Productivity Commission should review the school and university system to see how we can respond to parents and student demands better.  Why do we need to confine demand to localities instead of offering parents and students vouchers for them to choose the best schools?  If for instance Rossmoyne High School, a historically consistent high-performing public school is in high demand, to the point parents take out residential rental addresses in the catchment area to place their children in the school, it should have an enlarged budget for it to open in more catchment areas.  There is no reason to confine this school to one catchment zone instead of letting it take its ethos, management and teaching success to other zones.  Poorly performing schools should be taken over by high performing Principals and their teams so the latter could use the facilities better to provide better education for more students.

Allowing high performing schools to take over low performing schools’ assets and resources will help raise the quality of public education.   

NDIS

The mark of a civilised society is its capacity to look after the most vulnerable.  The mark of an uncivilised society is using that excuse to create a class of false needs and satellite goods and services providers for political purposes.  The National Disability Insurance Scheme (NDIS), launched in 2013 as a trial and fully rolled out nationwide by 2020, has seen rapid growth in patient numbers and expenditure.  When the NDIS officially launched in 2016, there were approximately 30,000 participants (qualified recipients with approved plans) across the initial trial sites that transitioned into the full scheme.  By end Jun 2017 (first full year), this grew to 103,000 active participants with approved plans.

Patient (or “participants” in NDIS terminology) numbers rose from the full launch (July 2016) level to 751,446 (5% of Australia’s total labour force) with approved plans as at end Sep 2025.  These are the qualified recipients eligible for and receiving supports under the scheme.  This figure excludes early intervention connections for children under Early Childhood Approach and focuses solely on those diagnosed and classified as eligible, without including service providers or related roles.  The growth has averaged up to 20% annually, prompting reforms like an 8% growth cap from July 2026.

Funding primarily comes from the federal government (via general revenue and the DisabilityCare Australia Fund, bolstered by a Medicare levy increase to 2% in 2014), with contributions from state and territory governments.  Total scheme costs have escalated from around $1 billion in its early years to over $50 billion annually by 2024-25, with forecast at $60 billion by 2029-30 including one-off capital expenditure.  The NDIS Funding table compiles historical data on total NDIS scheme expenditure (actual or projected, in $ billions).  The figures represent the combined federal and state/territory contributions, with data drawn from government reports, budgets, and analyses and with gaps existing for early trial years due to phased implementation.

NDIS eligibility criteria have undergone refinements as part of the broader 2023-25 reforms, primarily through the National Disability Insurance Scheme Amendment (Getting the NDIS Back on Track No. 1) Bill 2024, passed on 22 August 2024 and effective from 3 Oct 2024.  These changes are claimed to clarify access requirements, with focus on permanent and significant disabilities, and promote sustainability by distinguishing NDIS-funded supports from foundational (state/territory-funded) ones.  Core eligibility – such as age (under 65 at application, except early childhood), residency (Australian citizen/permanent resident / protected visa holder), and substantial functional impairment – remains unchanged.  However, these reforms looked at the trees but not the forest.

Eligibility is only one factor in driving costs.  The other issue is funding does not go to patients but to plan managers, who have discretion to interpret and distribute the areas of needs for the allocated money.  Some professional diagnosis such as from Occupational Therapists are called for, but a vast world of associated goods / services providers hangs on to that money train without need for qualification.  A few months through the application process to “work for NDIS” and taxpayers can be milked.  Unskilled and low-skill workers earning $30-50 an hour in the private sector under normal conditions got paid $60-90 an hour through NDIS channels, affecting a mini-Gregory effect, sucking the unskilled and semi-skilled labour from other parts of the economy to enjoy less effort.

Critique of the claimed impacts and ongoing implementation:

• On Participants: Reforms were said to prioritise choice/control (76% reported gains in 2023-24) and outcomes like community participation, but transitions to foundational supports (state-funded) could affect 10-15% of participants.  First Nations access improved (9.9% of new entrants in Q2 2024).  The shock increases in patient numbers were taken as a given, with only superficial allocation of patients to categories and types.

• On Funding/Costs: Targeted $14.4 billion savings over 4 years via plan inflation controls and eligibility tweaks is underwhelming; this number should not be for 4 years but should be cut back immediately as fraudulent practices were found to infest the scheme.  The 2023 growth “slowed” to 9.7% YoY – an unserious outcome after a decade of trial and operation.  Economic ROI remains $2.25 per $1 invested – a poor result.

• Challenges: Groups like Disability Advocacy Network Australia (DANA) raised concerns over rushed changes undermining scheme intent, lack of end-to-end co-design, and potential support gaps without evaluation.  The NDIA committed to halting non-co-designed elements.  There is no discussion on the unsustainability of the scheme.

• Post-2023:  By Nov 2025, reforms show “stabilisation” with a 2024-25 Roadmap, but this hope has been dashed by the FY2025-26 Federal Budget suspecting of further rises to the end of this decade.

Through implementation incompetence, the government has created a “disabled” society with a 10-20-fold increase in patients in ten years, plus an army of service providers that has quit the productive side of the market to swamp the NDIS gravy train, catapulting this sector’s cost to surpassing the national defence budget.  The Government is non-fussed about the poorly managed NDIS budget, which has blown out by 50 times since the starting line.  The government reported prior to the 2025 federal election that a recent review had found $2.8 billion inefficiency blip that could be saved for the taxpayer.  This is not material savings.  The review appears to have been done to pre-empt public calls for a DOGE style investigation into waste and fraud in NDIS.  Even so, it’s turning out to be a premature brag.  News reports subsequently cast doubt over government claims of NDIS savings of $19 billion from state contributions over the following four years.  The estimated NDIS budget blow-out looks like $8.8 billion for this period.

It would be reasonable to expect much more savings that can be extracted from the highly inefficient NDIS programs should a proper audit and efficiency drive be commissioned by a future government.  The system is run on satellite services’ benefits rather than the recipients’ welfare.  Funding is provided to a vast number of qualified and unqualified layers of service providers, not directly to recipients, who must go through a complicated application process to “plan managers”, who consult with occupational therapists of their choosing.  This goes against the user-pays principle.  The key to reining in this bottomless public spending well is to: 1) work from a sustainable budget backwards, and 2) provide payments directly to patients and their families or own appointed power-of-attorney to dispense, the same as a true insurance policy would work.  But to do this, there must be private sector based limited cover.

Under a sane insurance scheme, actuaries will give us reasonable levels of support for different forms of disability based on different levels of premiums.  Citizens should pay insurance premiums for themselves for levels of disability they deem appropriate, with this cost recovered from tax reforms.  Only a small number of people, those who are truly in need, should be covered under a social scheme.  The current 5% of the workforce being participants in the NDIS scheme is equal to the unemployment rate and this confirms the abusive nature of the scheme.  The social scheme pay-outs should be capped at private cover levels based on transparent premiums paid for by taxpayers under an equivalent private sector scheme.  This will eliminate the arbitrary levels of cover for all those that qualify under arbitrary assessment by government, which results in unfair allocation of NDIS funding to different people with different disabilities.

Government Stewardship, Not Crowding Out

Sowell examines historical tax cuts, such as those under Presidents Kennedy (1960s), Reagan (1980s), and later examples, showing that reductions in tax rates often led to increased economic activity, which in turn expanded the tax base and resulted in higher total tax revenue that helped maintain government services in the real public sector.  He cites data from the U.S. Treasury and Congressional Budget Office to support this, noting, for example, that after the Kennedy tax cuts, personal income tax revenue rose by 9% in 1964 and 16% in 1965, despite lower rates.  After Reagan’s tax cuts, federal revenue increased from $599 billion in 1981 to $991 billion by 1989.  This helped fund the Star War initiative that bankrupted the Soviet Union trying to keep up.

In his books Wealth, Poverty and Politics (2015, revised 2016, Basic Books) and Basic Economics (5th edition, 2014, Chap. 19), Sowell discusses economic incentives and tax policy and lays out the comprehensive historical data and reasoning.  Additionally, he has referenced this pattern in columns syndicated in Forbes and National Review in the 1980s and 1990s, building on the evidence with clear empirical examples.

• Coolidge-Mellon Tax Cuts (1920s)

• Context:  Though Pre-Depression, Sowell references this in Basic Economics as a precursor. Treasury Secretary Andrew Mellon, under President Calvin Coolidge, reduced top income tax rates from 73% in 1921 to 25% by 1926 via multiple tax acts.

• Impact:  Federal revenue grew from USD5.1 billion in 1921 to $5.4 billion by 1926, despite lower rates. The economy expanded rapidly during the “Roaring Twenties,” with GDP growth averaging 4% annually, increasing tax collections.

• Note:  Sowell uses this to illustrate the long-standing pattern of tax cuts spurring growth and revenue and lifting economic growth from the lower band of 2-3% through excuses of “mature economies”.

• Kennedy Tax Cuts (1960s)

• Context:  The Revenue Act of 1964, signed by President John F. Kennedy (implemented under Lyndon Johnson), reduced personal income tax rates across the board (eg, top marginal rate from 91% to 70%) and corporate rates from 52% to 48%.

• Impact:  Sowell cites Treasury data showing personal income tax revenue increased by 9% in 1964 and 16% in 1965, despite lower rates. Real GDP growth accelerated to 5.8% in 1964 and 6.4% in 1965, expanding the tax base as businesses and individuals earned more.

• Revenue Data:  Federal receipts rose from USD94.4 billion in 1963 to USD112.6 billion by 1966 (in nominal terms, per Historical Statistics of the United States).

• Reagan Tax Cuts (1980s)

• Context:  The Economic Recovery Tax Act of 1981 and subsequent reforms under President Ronald Reagan cut marginal income tax rates (top rate from 70% to 50% by 1984, later to 28% by 1986) and simplified the tax code.

• Impact:  Federal revenue increased from USD599 billion in 1981 to $991 billion by 1989 (per Office of Management and Budget).  The economy grew at an average of 3.5% annually (1983-89), with unemployment dropping from 7.5% in 1981 to 5.4% by 1989, boosting taxable income.

• Key Point:  Despite initial deficits due to spending increases, income tax revenue rose as economic activity surged.

• Bush Tax Cuts (2000s)

• Context:  The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 under President George W. Bush lowered income tax rates (top rate from 39.6% to 35%) and capital gains taxes.

• Impact:  Sowell points out that federal revenue rose from USD1.99 trillion in 2003 to USD2.57 trillion by 2007 (per Congressional Budget Office). Real GDP growth averaged 2.7% annually from 2003 to 2006, with stock market gains and business investment driving taxable income.

• Caveat:  The 2008 financial crisis disrupted the trend, but revenue growth was clear before then.

• Mechanism:  Sowell emphasises that tax cuts incentivise economic activity – more investment, hiring, and consumption – expanding the tax base.  This aligns with the Laffer Curve concept of an inflection point at which higher tax rates reduce tax revenue, though he avoids overgeneralising, focusing on empirical outcomes.  He cites Treasury and CBO data to show revenue increases, adjusted for inflation, in these periods.

Those rooting for large government accept there is a Laffer Curve but argue this to show that the work-disincentive tax levels on the Laffer Curve are higher than the current U.S. income tax rates.

The Laffer Curve is an economic concept illustrating the relationship between tax rates and government revenue.  Named after economist Arthur Laffer, it suggests that at very low tax rates, revenue is low because little is collected, but as rates increase, revenue rises – up to a point.  Beyond a certain threshold, higher tax rates discourage economic activity (work, investment, or consumption), shrinking the tax base and reducing total revenue.  The curve implies an optimal tax rate that maximises revenue without stifling growth.  The Laffer Curve concept suggests that beyond a certain average effective tax rate (total taxes as a share of income, including income, payroll, and consumption taxes), further increases can reduce total revenue by shrinking economic activity and the tax base. Empirical estimates vary by model, data period, and assumptions (eg, labour vs. capital taxes, human capital effects), but U.S. and Scandinavian experiences provide key insights. These are drawn from macroeconomic simulations and historical data, focusing on total effective all-inclusive average rates rather than statutory marginal income tax rates alone.  “All inclusive” means all taxes that impact on the purchasing power of personal income including taxes on income, capital gain, social security (superannuation) contribution, goods and services, luxury products, insurance, etc.

U.S. experience based on 1959–91 data shows the revenue-maximising total tax rate at 32.67–35.21%, based on quadratic models of personal income tax revenue.  At the time, the U.S. was near this peak, and raising the top marginal income tax rate from 31% to 36% would take the total rate to well 35% and risk revenue declines due to behavioural responses like income shifting.  Broader models (calibrated to 1995-2010 data) estimate the peak for average labour taxes at 62% (baseline) or 43% with human capital accumulation, with current effective labour tax rates (22-25% including federal, state, and payroll but excluding all else) well below the peak.  However, total tax burden (all taxes) already peaked at 50-60%, which means at inflection point when tax revenue starts going down.    Post-1980s tax cuts of the Reagan era increased revenue by expanding the base, supporting that total, effective average rates above 35-40% deter investment and work.  The Scandinavian countries (Sweden, Denmark, Norway) have higher total effective average tax rates (40-50% of GDP in total taxes vs. 25-30% of GDP in the U.S.), often near or above Laffer peaks for top earners, leading to evidence of revenue drag.

In Sweden, the peak for total effective average rates is 61–65%, but current rates (75% including social contributions and consumption taxes) exceed this, with degree of self-financing (DSF) at 195% - meaning a small tax cut would boost revenue by SEK7.6 billion annually via base expansion.  Labor tax peak at 62%, current 50% (baseline below, but above with human capital effects).  In Denmark, tax peak at 62% for top rates, current 66% above, DSF 119% (revenue gain from cuts).  Labor peak at 54%, currently 43% (near peak; above peak with human capital).  Norway shows peak at 71% for top rates, currently 63% but overall high rates (45% total) show smaller distortions due to revenues from the Government Pension Fund Global (GPFG).  Cross-country models indicate Scandinavians are closer to peaks (max additional labour revenue 1-4% of GDP vs. 37% in U.S.), with output losses of 4-10% at peaks.  High rates correlate with slower base growth, but broad tax bases and public goods (eg, childcare) mitigate some losses.

In summary, the U.S. economy sees tax revenue falls at above 35-40% total average effective rates; Scandinavia at 60-70%, where current policies often exceed peaks for high earners, prompting revenue-maximising cuts.

Individual responses to marginal tax rates (tax on the next dollar earned) are measured by the elasticity of taxable income (ETI), which captures reduced effort, hours, or income shifting. ETI >0 indicates distortion; higher values mean stronger reductions.  Thresholds emerge around 50% where behavioural changes accelerate, but effects vary by country due to tax base breadth and enforcement.  With regard the ETI, estimates range 0.4-0.5 overall (meta-analyses), rising to 0.8+ for top earners – meaning a 1% rate hike reduces reported income by 0.4-0.8%.  Reductions in effort (hours, entrepreneurship) become significant above 50% marginal rates, as seen in pre-1986 high-rate eras (70-90%) with widespread avoidance and labour supply drops.  Historical evidence (1993 top-rate hike) shows bunching and shifting at kinks above 40-50%, with long-run ETI of 0.2-0.4 for hours but higher (0.6-1.0) for top 1% due to intertemporal shifting.  ETIs are lower in Scandinavia (0.05–0.15 in Denmark/Sweden) despite 60-70% top marginal rates, due to broad bases, third-party reporting, and limited avoidance options – reducing evasion compared to the U.S.  However, effort reductions (eg, hours compression) start above 50-60%, with Danish reforms showing 12% efficiency loss from high taxes on intensive margins.  In Sweden, the top rates greater than 60% (Sweden’s 75%) trigger DSF >100%, implying individuals reduce effort enough to shrink revenue.  Norway/Finland show migration and top earner exits above 65-70%.  Female participation dips with implicit taxes >70-80% (net-of-transfers).  Overall, individuals reduce effort above 50% marginal rates in the U.S. (stronger ETI) and 60% in Scandinavia (weaker but present at tops), prioritising base-broadening over rate hikes for revenue.