Taxing Analysis of Taxes

There a lot of discussion about taxes, especially making them more progressive.   Do I have an argument that that’s a bad idea?  No.

However, I do think there’s a lot of points of view with some merit that are hard to test to a certain conclusion.  For example:  is growing envy as a result of inequality a reason to impose millionaire taxes?  Maybe not, and a new soak the rich policy will have unknown effects and may be unwise.  Here’s more on the issue of envy and the effects of making its reduction a goal.

…the modern wishy-washy approach to student evaluation is thwarting envy, which will actually reduce the amount of learning that takes place. If you know who the top performers are in your class, you can watch them, see what they do, and try to replicate it. Maybe you can get them to show you a few things.

What about "positional" goods? These can actually be performing a useful economic role, even if they are pure "waste" in the conventional sense….To get envy working as a force for social good, we need to be able to correctly identify economic successes. How are we going to do that if the successful people hide their wealth? Someone who pushes her Beamer off a cliff in public is demonstrating to us that she is successful – so successful that she can waste resources…

You don’t want to tax the positional goods or pass laws against having them, for the same reason that you don’t want to take grades away from the elementary school kids. In doing so, you are thwarting envy. When you do that, you will get less learning and less innovation, and on average we will all be worse off.

Another good analysis is here, and comes to different conclusion. 

The bottom line I think is that the effect of dramatically higher taxes on the upper class is unknown.  I would argue that in order to put our fiscal house in order, we should move to at least partially eliminate the Bush era tax cuts across range of income, not just for the wealthy, however defined.  This has the advantage of moving us back toward the tested Clinton rates.  Those rates went along with fairly good economic conditions.   A strong soak the rich policy, while appealing in some ways has a less predictable outcome than trying to move back to the taxes we had as recently as 11 years ago.


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