Let’s talk taxes

Posted: 3 June 2016 in Uncategorized
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The usual argument in the United States, one we’ve been hearing again (and again and again) in the current presidential campaign, is that a decrease in tax rates at the top will help everyone. Growth, inequality, basic fairness—all will be improved if only American politicians would agree to lower tax rates on large corporations and wealthy individuals.

Mark Thoma [ht: ja], as mainstream an economist as there is, takes up all the basic arguments in favor of decreasing taxes and demonstrates how wrong they are. Each and every one.

Here’s the list (readers can look at the column for the details):

>Increasing taxes on the wealthy will harm economic growth.

>Increasing taxes on the wealthy won’t solve the income inequality problem.

>Tax increases will blunt the incentive to invest in new businesses.

>The wealthy will move to other countries to avoid the tax increase.

>Increasing taxes on the wealthy won’t increase tax revenue.

>Less will be donated to private charities.

>The wealthy deserve what they earn.

>It’s a tax on small businesses.

No, no, no, no, no, no, no, and no.


Not a single one of those arguments holds up. The only significant result of lowering the top Federal income tax rate is to increase inequality, which is exactly what we’ve seen in the United States for the past five decades.

As Thoma concludes,

Arguments about the size of government and the taxes needed to support the many things that government does are certainly fair game for politicians. But the argument that tax increases on the wealthy will cause substantial harm to the economy does not withstand a close look at the evidence.

  1. I disagree with these points for the most part. The idea of setting the marginal tax rate high enough that people will reinvest that money into their businesses and do other things that give these people tax write-offs instead of hoarding it may have merit. However, if we had a flat tax that taxed earned income and capital gains equally, this should appeal equally to progressives and conservatives.

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