Not every model of economic behavior can allow for variable labor supply. When attention is focused on other economic issues, the effect on welfare change measurement of assuming labor to be in fixed supply becomes important. The traditional view is that allowing labor supply to be variable will reduce the measured benefits of replacing an interest income tax with a payroll or consumption tax, owing to the introduction (or increase in) a static distortion between consumption and leisure. However, this view ignores two mechanisms by which variable labor supply may actually increase the benefits of relaxing the capital income tax. First, an interest income tax distorts the intertemporal path of leisure, and thus of labor supply. Second, as explained below, the interest elasticity of savings may be augmented by changes in the intertemporal labor supply path. Eliminating the labor supply path distortion and increasing capital accumulation can provide benefits which may potentially exceed the disadvantages of increased static distortion. This paper tests which effects dominate by simulation in a life cycle growth model. Previous papers have not addressed these issues. Feldstein [3] discusses welfare measurement in a two-period model in which an individual supplies labor in the first period and consumes in both periods. Feldstein's partial equilibrium efficiency measure incorporates the elasticity of labor supply with respect to the interest rate, but his single period of labor supply may be misleading. Summers [8] demonstrates that in multi-period models interest rate changes may have a large effect upon the present value of lifetime resources (human wealth) and, consequently, consumption. That finding, when applied to frameworks allowing for leisure consumption, implies that both the compensated and uncompensated elasticities of labor supply with respect to the interest rate may be markedly different for multi-period than for one period labor supply models. Summers exploits a multi-period life cycle growth model to measure numerically the steady state efficiency gains following an elimination of interest income taxation. He assumes labor to be fixed in supply at each moment. Consequently, changes in human wealth cannot affect the leisure profile and the benefits of eliminating intertemporal leisure distortions are not captured. Summers concludes that steady state consumption and welfare would increase