3 Vocabulary practice: switching.

Get ready for an oral (written) translation exercise based on the economic terms in bold, as well as other relevant words and phrases from the text.

При полной занятости; autonomous consumer spending; при существующей структуре налогообложения;existing expenditure structures; любое сочетание структуры налогов и потребления; expansionary influence; относимый на счёт ч-л; to tend to cushion the economy; деловая конъюнктура; the Laffer curve; to impose disincentives on sth; tax revenues; отрицательный стимул; marginal tax rate; small gains in income; autonomous spending; функционировать; contractionary influence; federal tax policy; сокращать расходы; balanced budget multiplier; экономическая деятельность; to offset fluctuations; финансовая политика со стороны предложения; federal spending policy; минимальные государственные расходы; disposable income; дискреционная финансовая политика; structural deficit; налогообложение; autonomous tax multiplier; in a Keynesian depression; равняться единице; equilibrium income; следовать из ч-л; autonomous stabilizer; progressive income tax; взимание налогов (сумма налоговых поступлений); to fall proportionally faster; built-in stabilizer; ставить задачу; fiscal drag; тормозить развитие экономики; to increase sth through the multiplier process; замедлить темпы роста; percentage tax; cyclical deficit; в целях стабилизации; congressional action; автоматический стабилизатор; low tax rates; налог на прибыль корпораций; transfer program; подоходный налог с физических лиц; net tax revenues; воздействие; to transmit sth into spending.

4 Translation from page.

Translate from page the passage expanding on the subject of the text.

Does taxation have a natural limit?

An advisor to an Egyptian pharaoh is credited with first observing that high tax rates may hinder incentives to work and investment, reducing actual tax revenues. Joseph Schumpeter, while serving as Finance Minister in Austria during the 1920s, proposed an economic “law” that taxpayer resistance precluded any government from collecting taxes of more than 27% or so of people’s income. He may have been close to being right.

Arthur Laffer, a celebrated supply-sider, explained this concept to a journalist at a Washington, D.C. restaurant, and sketched on a napkin what has become known as the Laffer curve: very low tax rates might be raised to yield higher tax revenue, but raising tax rates excessively eventually drives tax revenues down when taxpayers decide either (a) that the extra effort necessary to generate extra taxable in­come is not worth it or (b) that cheating the tax system is okay.

If Uncle Sam's bite is too fierce, many taxpayers will prefer leisure over additional work and will consume immediately from income instead of saving and investing. And tax evasion may divert more activities into the underground economy.

Supply-siders argue that high tax rates are disincentives to produce, so that income shrinks as tax rates climb. This means that the same tax revenues might be generated by both a high tax rate and a low one. Marginal tax rates are the percentage taxes on small amounts of extra income.

Marginal tax rates that average ei­ther 15% or 75% yield tax revenues of $500 bil­lion, while marginal tax rates that average X percent yields $ 1 trillion to the tax collector. Any increase in marginal tax rates over X percent ac­tually shrinks tax collections.

How will people react if high marginal tax rates reduce the gains from working, saving, and investing? Potential workers may adjust to high tax rates with more non-market activities, such as do-it-yourself projects. Potential savers and investors will realize less interest income if mar­ginal tax rates are high, so they will consume more currently, forgoing future consumption.

Evidence of this sort of behavior was pro­vided when wealthy people in Britain splurged on furs, Rolls-Royces, and other luxuries in the 1970s when marginal income tax rates peaked at 99%. Investing was not worthwhile because of rapid inflation and the staggering tax rates on investment income. The British economy stag­nated in the 1960s and 1970s, while areas of London where high society gathered abounded with conspicuous consumption of luxury goods.

Some analysts argue that the United States operates close to the peak of the Laffer curve and favor reducing tax rates to ease disincen­tives against work and investment. They fear that tax hikes to slice recent deficits may restrict economic growth and squelch tax revenues. Ronald Reagan, a major convert to supply-side economics, persuaded Congress to cut marginal tax rates by an average of 25% between 1981 and 1983. Results? Between 1980 and 1994, the economy grew by 134%, while federal tax rev­enues grew 145%. But budget deficits grew be­cause politicians failed to control federal outlays, which expanded 152%. 2631 digits