Should Tax Rates Decline with Age?

By Hemel, Daniel | The Yale Law Journal, May 2011 | Go to article overview

Should Tax Rates Decline with Age?

Hemel, Daniel, The Yale Law Journal

For nearly a century, economists have recognized that it is "advantageous to ... tax most the source of supply which is least elastic." (1) But although the "inverse elasticity rule" is now a basic tenet of public economics, (2) it rarely yields practicable prescriptions for tax policy. (3) For example, the inverse elasticity rule would suggest that marginal tax rates should decrease as income increases, (4) as taxes are more likely to disincentivize labor for high-income individuals than for low- and moderate-income individuals. (5) However, such a policy may not be politically feasible (6)--or normatively desirable (7)--on account of its regressive implications.

Still, there is one segment of the workforce whose labor supply is highly price-elastic and whose relative tax rates (8) might be lowered without triggering the political concerns and distributive qualms mentioned above: older workers. (9) By one estimate, the price elasticity of labor supply--the percentage increase in hours worked for every one percent increase in after-tax income--is approximately three times as high for sixty-year-olds as it is for forty-year-olds. (10) Other estimates indicate an even more dramatic increase in labor supply elasticity over age. (11) Thus, the deadweight loss per dollar raised from income taxation is much larger for taxes imposed on older Americans than for taxes imposed on prime-age workers. (12) Congress could raise the same amount of revenue while generating less deadweight loss if it increased rates on prime-age workers and lowered rates on older ones. (13)

This Comment evaluates age-adjusted tax rates from the perspectives of economic efficiency, distributive equity, and political feasibility. (14) It presents the first sustained case from a law-and-economics perspective for reducing income tax rates on individuals as they enter old age. It also explains how age-sensitive tax rates can be consistent with distributive equity objectives. Finally, it shows the importance of reconciling optimal taxation theory with political reality and constitutional law. Until now, tax theorists have derived optimal tax rules without reference to political and constitutional constraints. By incorporating political considerations into the optimal tax calculus, economists and tax law scholars can generate policy prescriptions that not only are efficient in theory but also stand a chance at implementation.


Economists of all political persuasions agree that income taxes disincentivize labor to some degree, (15) although they differ dramatically in their estimates of the magnitude of this effect. (16) There are at least three reasons why we might expect labor supply to be relatively insensitive to taxes. First, workers may not respond to changes in their tax burden because they cannot comprehend the intricacies of the Tax Code. Second, nonpecuniary factors such as social pressure may lead individuals to remain in the workforce even when marginal tax rates are extraordinarily high. (17) Third, wage earners do not necessarily have full control over their labor supply. It may be difficult for them to slide along the "intensive margin" (that is, to adjust the number of hours that they work per day or the number of weeks that they work per year) because employers often demand a minimum number of hours from their employees. By contrast, workers generally have much more freedom to make choices at the "extensive margin," such as to exit the labor force entirely. (18)

If individual workers cannot make marginal adjustments to their hours, then we would expect the price elasticity of labor supply to be greater for individuals who are considering exit from the workforce than for individuals who might desire an incremental reduction in hours. (19) In other words, we would expect the disincentive effects of taxation to be greater around the retirement decision than at midcareer. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Should Tax Rates Decline with Age?


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

    New feature

    It is estimated that 1 in 10 people have dyslexia, and in an effort to make Questia easier to use for those people, we have added a new choice of font to the Reader. That font is called OpenDyslexic, and has been designed to help with some of the symptoms of dyslexia. For more information on this font, please visit

    To use OpenDyslexic, choose it from the Typeface list in Font settings.

    OK, got it!

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search


    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.