If two persons have equal labor earnings over their lifetimes and never receive any gifts or inheritances, then the discounted present value of income taxes that they pay will be the same despite any differences in their rates of saving.

Question

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The discounted present value of income taxes paid by two individuals with equal lifetime labor earnings but different savings rates can differ due to the timing of tax payments and the impact of investment income taxes. If one saves more, they might generate more investment income, which could be taxed differently than labor income, affecting the total present value of taxes paid.

If Two Persons Have Equal Labor Earnings Over Their Lifetimes