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Effects

At least nine different effects of the use of the proposed tax Instruments can be expected:

1.    Taxation of high payments for personal incomes and too rapid increase of nominał incomes will eliminate to a major extent the im-pulses which move the inflationary spiral.

2.    In distribution of revenues to personal incomes and business funds, collectives will decide much morę often than now to supple-ment funds, for the latter are retained by them in entirely (i. e., un-taxed), while increased personal incomes mean a definite loss of a large part of income. Accordingly, self-financing of investment is stimulated.

3.    Enterprises of above average profitability will use a much great-er part of income for investment than has been the case up to now. Accelerated investment means accelerated increasing of supply in re-lation to demand. Saturation of demand leads to relative reduction of prices and elimination of excess profits. In that way an automatic corrective mechanism is built into the system which will constantly correct differences in personal incomes. Monopolies are broken up and investments are automatically directed to where demand is greatest.

4.    Determination by trade unions of standard differentials in cal-culated pay scales according to qualifications will lead to formation of social norms which will act in the direction of arranging the distribution of income without any kind of administrative interventions.

5.    For understandable reasons attempts up to now to improve the structure of qualifications in already filled job positions have had poor results. However, with introduction of progressive taxation, people with inadequate qualifications will become so expensive for the collective that hastening of the adjustment of the qualifications structure to job positions will occur. Here is an example. Let us as-sume that in some enterprise secondary and higher education are paid in the proportion of 1:2. In so far as a worker with secondary school-ing works at a job for which higher education was foressen, he will cost the enterprise two monetary units (in so far as deductions because of inadequate preparation are not madę). If a progressive tax is now introduced, the basis for taxation is 1, for that is the qualification group in which the worker falls. To the extent that the progression of the process is sufficiently steep so that, for example, the average ratę falls out to be 66°/o, the worker can continue to receive personal income of two units if the enterprise spends a total of 4 (of which 2 represents the tax which amounts to 66% of 4 — 1 =3). However, if the collective brings to the respective job position a worker with higher eudcation, that worker will cost only two monetary units. From the point of view of the collective it is obvious that it pays to place a morę ąualified worker who is besides half as expensive. A massive search for as highly qualified labor as possible will occur. A rapid rise in the qualification structure must lead to revolutionary changes in regard to the efficiency of business activity.

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