Surely many things motivate all individuals, including innovators, great and small. One of these motivating factosrs may reasonably be assumed to be financial success. (We say this because there is a vast body of evidence that financial success is one of the motivators of human beings in virtually all walks of life.)
This notion brings us back to taxes, where our story began. Innovators, like everyone else, only receive after-tax income, that is, income after the various government entities have collected the taxes they impose. These taxes may come in a variety of forms: income taxes, sales taxes, property taxes, and so forth. But whatever their form or level of government at which they are levied, higher taxes mean lower after-tax incomes.
And this in turn means reduced incentives. Perhaps most importantly, the change in incentives reduces the incentive to innovate. But higher taxes also reduce the incentive to invest (because taxes cut into the after-tax income from investment) and even to work—because higher taxes mean lower after-tax income from work.
An easy way to think about the effect of taxes on behavior is to imagine that we decided to raise taxes on professional athletes. Recall from above that the most productive people are those who tend to earn the highest incomes. Almost surely, then, the biggest burden of higher taxes would be on those with the highest incomes—which also means those who are the most productive.
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