People often worry that high tax rates would reduce the supply of labor. Consider the impact of higher taxes with a backward-bending supply curve as follows:

Define the before-tax wage as W, the post-tax wage as W_p , and the tax rate as t. Explain the relationship

W_p = (1 - t) W. Draw up a table showing the beforetax and post-tax wages when the before-tax wage is $20 per hour for tax rates of 0, 15, 25, and 40 percent.

Now turn to Figure 13-4. For the regions above and below point C, show the impact ofa lower tax rate upon the supply curve. In your table, show the relationship between the tax rate and the government's tax revenues.