TAXES….On Monday I wrote a post that made two points about the U.S. economy since World War II: (a) tax rates on the rich have steadily declined and (b) overall growth rates have also steadily declined.
As I said in comments to that post, my point was not really to claim that declining taxes on the rich have caused slowing growth. Rather, it was to show that declining taxes on the rich certainly haven’t accelerated growth, as conservative economists keep promising. In fact, within a fairly broad range, tax rates have very little impact on economic growth.
Here’s a thought experiment: design any personal tax system you want. You can decide whether it’s an income tax or a consumption tax, you can decide what kinds of exemptions are allowed, etc. When you’re done, you’ll have your very own ideal tax system designed for maximum efficiency and economic growth, and you’ll have one job left: you have to set the tax rates themselves on various income groups. The only restriction is that they have to raise enough money to fund whatever government operations you also have in your ideal world.
Given that the actual rates (i.e., flat vs. progrssive) don’t have much impact on economic efficiency, the only real reason to choose one set of rates over another is based on what you think is fair and equitable. There’s no such thing as a “neutral” system, either. You have to choose rates of some kind, and any set of rates you choose is a reflection not of economic arguments, but of philosophic ones.
My view is that a progressive tax system is best, for reasons of basic equity and fairness. Why? I’ll leave that for another post, but for now I just wanted to make a point that often gets hijacked by lengthy discussions of economic minutiae: in reality, tax rates are a reflection of what we value in a civil, democratic society. That’s what the argument should be about, and we shouldn’t allow partisans ? either conservative or liberal ? to avoid the subject by pretending that their proposals are nothing more than neutral arguments about economic growth. It’s just smoke and mirrors to take our minds off what’s really important, and we shouldn’t let them get away with it.