Weights Computation For Optimal Average Taxation

Abstract

Prior research reported that the optimal tax rate for maximizing per capita gross domestic product (GDP) adjusted for purchasing power parity (GDPppp) is 21 percent worldwide. This is the rate that applies to the total domestic income from all production and services. However, this income emanates from a variety of sources. These component income sources might be taxed at different statutory rates. In the United States of America (USA), statutory tax rates might be graduated as incomes rise from low to high values in the interest of what is said to be social justice. The reason for these differences might also be due to desired outcomes and politics of social mores and may vary regionally by state and by city. Differences might also exist by industry for desired economic outcomes or by political priority. The purpose of this paper is to identify the various sources of income in the USA, and to determine the optimal weights that when applied to these income components result in a weighted average tax that amounts to 21 percent.