Monday, April 23, 2012

Mark Thoma — "High Tax Rates Won't Slow Growth"

With the "taxes harm growth" and Laffer curve arguments undercut by research such as this, Republicans have fallen back on the argument that it's unfair to take income away from those who earn it. But that presumes that the system allocates income fairly, a claim that is hard to swallow given how much financial executives are paid relative to their contribution to the productive process (to name just one example). There's nothing unfair about using taxes to "clawback" misdirected income, and it won't harm growth to send income where it should have gone in the first place.
It's called taxing economic rent.

Read it at Economist's View
"High Tax Rates Won't Slow Growth"
by Mark Thoma

Should we be taxing at all in a stagnant economy?

Yes. Inequality and lack of fairness are socially and economically detrimental. When inequality grows due to both rent-seeking behavior and lack of fairness, e.g., a tilted playing field, then distributional maleffects have to be addressed fiscally by taxing away rents while increasing transfers where most needed and spending that is stimulative. 

One purpose of taxation is to discourage behaviors that are detrimental, e.g., socially, environmentally, or economically, and that is still needed even when the sectoral balance approach and functional finance indicate larger fiscal deficit is needed to offset increased non-government saving desire.


Dan Lynch said...

I agree with the need to address inequality (of which taxation is only one part of the puzzle).

However, like any good MMT'er, I'm leery of raising taxes in this depression. If I were a politician, my tax-the-rich proposals would be linked to tax reductions for the poor and/or spending programs targeted at the poor.

And given the current political environment, the best you could hope for to get a tax increase passed is a Gang-of-Six type deal that is tied to spending cuts to please Pete Peterson. So why go there ?

Admittedly, it's hard to propose any politically viable economic plan these days. The prez really needs to take Beowolf's advice on the platinum coins so we can pay off the debt and shift the debate.

Tyler said...

In 2009, Christina Romer wrote an excellent article on the perils of austerity:

MikeB said...

Echo Tom. Taxes can and should be used to modify behavior. There are lots of examples of taxes, fees and parking tickets intended to modify our behavior for the good of the public purpose.

Should we tax the rich? What do they do with that money now? A commenter at WCI argued with me that they "invest". My impression is that buying apple stock these days really isn't investing in future production. Nor is speculating in commodities or financial derivatives. My completely non expert impression is that taking more from the rich will have little or no effect on AD. And then if we give it back to the low end as Dan suggested, then there is a very positive effect on AD.

At the end of the day it seems to me we are still arguing in the wrong frame. We need to get the conversation away from the difference between spending and income - whatever that word is - I try not to use it any more.

Michael Boudreau

Tom Hickey said...

"Investment" has two meanings, making it necessary to distinguish between economic investment and financial investment. The fist is spending by firms, as in Y = (S-I) + (G-T) + X-M), and the second is portfolio management. which is saving through ownership of various asset classes. The latter is saving not investment that produces anything directly. It creates a market for primary investment, i.e., venture capital and firm debt instruments like corp bonds . The only type of saving that produces anything directly is venture capital and firm borrowing, and therefore only this can be said to be investment in the latter sense being directly contributory to production and innovation (productivity). Saving that is not related directly to productive contribution should be taxed instead of taxing gain from productive contribution. This way, economic rent is discouraged and productive contribution not.

Leverage said...

High percentile should be taxed the fuck out of them on certain consumptions. Why?

Because we would end half of the ecological and energy problems we have and will continue to deteriorate in the future: Seth Klein: Climate Change and New Models of Growth 4/6

Indeed, we could have growth or at least quality of life improvement while reducing consumption of energy just by reducing the top percentiles of the population by income.

Introduce progressive taxes on consumption by income, and introduce taxes on rent-seeking and non-productive (real estate speculation) related activities . Cut or eliminate most other taxes, again progressively.