I’ve already shared a bunch of data and evidence on the importance of low tax rates.
A review of the academic evidence by the Tax Foundation found overwhelming support for the notion that lower tax rates are good for growth.
An economist from Cornell found lower tax rates boost GDP.
Other economists found lower tax rates boost job creation, savings, and output.
Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance.
And it’s become apparent, with even the New York Times taking notice, that high tax rates drive away high-achieving people.
We’re going to augment this list with some additional evidence.
In a study published by a German think tank, three economists from the University of Copenhagen in Denmark look at the impact of high marginal tax rates on Danish economic performance.
Here’s what they set out to measure.
…taxation distorts the functioning of the market economy by creating a wedge between the private return and the social return to a reallocation of resources, leaving socially desirable opportunities unexploited as a result. …This paper studies the impact of taxation on the mobility and allocation of labor, and quantifies the efficiency loss from misallocation of labor caused by taxation. …labor mobility responses are fundamentally different from the hours-of-work responses of the basic labor supply model… Our analysis builds on a standard search theoretic framework… We incorporate non-linear taxation into this setting and estimate the structural parameters of the model using employer-employee register based data for the full Danish population of workers and workplaces for the years 2004-2006. The estimated model is then used to examine the impact of different changes in the tax system, thereby characterizing the distortionary effects of taxation on the allocation of labor.
They produced several sets of results, including a look at the additional growth and output generated by moving to a system of lump-sum taxation (which presumably eliminates all disincentive effects).
But even when they looked at more modest reforms, such as a flat tax with a relatively high rate, they found the Danish economy would reap significant benefits.
…it is possible to reap a very large part of the potential efficiency gain by going half the wayand replace the current taxation with a at tax rate of 30 percent on all income. This shift from a Scandinavian tax system with high marginal tax rates to a level of taxation in line with low-tax OECD countries such as the United States increases total income by 20 percent and yields an efficiency gain measured in proportion to initial income of 10 percent. …a transition from a Scandinavian system with high marginal taxes to a system along the lines of low-tax OECD countries such as the United States. This reduces the rate of non-employment by around 10 percentage points, increases aggregate income by almost 20 percent (relative to the Scandinavian income level), and gives an efficiency gain measured in proportion to income of 9.9 percent. Thus, almost 80 percent of the efficiency loss from marginal taxation (9.7% divided by 12.4%) would be eliminated by shifting from a Scandinavian tax system to the system of a low-tax OECD country according to these estimates.
The authors also confirmed that lower tax rates would generate revenue feedback. In other words, the Laffer Curve exists.
We may also use the reform experiment to compute the marginal excess burden of taxation as described above. When measured in proportion to the mechanical loss of tax revenue, we obtain an estimate of 87 percent. …this estimate also corresponds to the degree of self-financing of the tax cut. Thus, the increase in tax revenue from the behavioral response is 87 percent of the mechanical loss in tax revenue.
Too bad we can’t get the Joint Committee on Taxation in Washington to join the 21st Century. Those bureaucrats still base their work on the preposterous assumption that taxes have no impact on overall economic performance.
Since we just looked at a study of the growth generated by reducing very high tax rates, let’s now consider the opposite scenario. What happens if you take medium-level tax rates and raise them dramatically?
The Tax Foundation looks at precisely this issue. The group estimated the likely results if lawmakers adopted the class-warfare policies proposed by Thomas Piketty.
Piketty suggests higher taxes on the wealthiest among us. He calls for a global wealth tax, and he recommends establishing a top income tax rate of 80 percent, with a next-to-top income tax rate of 50 or 60 percent for the upper-middle class. …This study…provides quantitative estimates of what his proposed tax rates would mean for capital formation, jobs, the level of income, and government revenue. This study also estimates how Piketty’s proposed income tax rates would affect the distribution of income in the United States.
Piketty, of course, thinks that even confiscatory levels of taxation have no negative impact on economic performance.
Piketty claims people (or at least the upper-income people he would tax so heavily) are totally insensitive to marginal tax rates. In his world view, upper-income taxpayers will work and invest just as much as before even if dramatically higher taxes reduce their after-tax rewards to a fraction of what they were previously. …Piketty’s vision of the world strains credulity.
When the Tax Foundation crunched the numbers, though, its experts found that Piketty’s proposal would be devastating.
Under Piketty’s 55 and 80 percent tax brackets, people in the new, ultra-high tax brackets will work and invest less because they will be able to keep so little of the reward from the last hour of work and the last dollar of investment. …As the supplies of labor and capital in the production process decline, the economy’s output will also contract. Although it is only people with upper incomes who will directly pay the 55 and 80 percent tax rates, people throughout the economy will indirectly bear some of the tax burden. For example, the average person’s wages will be lower than otherwise because middle-income workers will have less equipment and software to enhance their productivity, and wages depend on productivity. Similarly, people throughout the economy will have fewer employment opportunities and will lose desirable goods and services, because businesses will grow more slowly and be less innovative.
The magnitude of the damage would depend on whether the higher tax rates also applied to dividends and capital gains. Here’s what the Tax Foundation estimated would happen to the economy if dividends and capital gains were not hit with Piketty-style tax rates.
These are some very dismal numbers.
But now look at the results if tax rates also are increased on dividends and capital gains. The dramatic increase in double taxation (dwarfing what Obama wanted) would have catastrophic consequences for overall investment (the “capital stock”). This would lead to a big loss in jobs and a dramatic reduction in overall economic output.
The Tax Foundation then measures the impact of these policies on the well-being of people in various income classes.
Needless to say, upper-income taxpayers suffer substantial losses. But the rest of us also suffer as well.
…the poor and middle class would also lose. They would suffer a large, but indirect, tax burden as a result of the smaller economy. Their after-tax incomes would fall over 3 percent if capital gains and dividends retain their current-law tax treatment and almost 17 percent if capital gains and dividends are taxed like ordinary income.
And since I’m sure Piketty and his crowd would want to subject capital gains and dividends to confiscatory tax rates, the 17 percent drop is a more realistic assessment of their economic agenda.
Though, to be fair, Piketty-style policies would make society more “equal.” But, as the Tax Foundation notes, some methods of achieving equality are very bad for lower-income people.
…a reasonable question to ask is whether a middle-income family is made better off if their income drops 3.2 percent while the income of a family in the top 1 percent drops 21.0 percent, or their income plummets 16.8 percent while the income of a family in the top 1 percent plummets 43.3 percent.
Of course, if Margaret Thatcher is correct, the left has no problem with this outcome.
But for those of us who care about better lives for ordinary people, this is confirmation that envy isn’t – or at least shouldn’t be – a basis for tax policy.
Sadly, that’s not the case. We’ve already seen the horrible impact of Hollande’s Piketty-style policies in France. And Obama said he would be perfectly content to impose higher tax rates even if the resulting economic damage is so severe that no additional revenue is collected.
The Piketty policies would dramatically increase corporate inversions.
When the top executives of a firm become subject to confiscatory tax rates, they will adapt by leaving the country. It’s only logical that they will also move the company’s headquarters. France has provided many recent examples.
If the boss leaves the country, many of the jobs he created disappear.
[…] The Punitive Economic Cost of Class-Warfare Taxation | International Liberty. […]
Reblogged this on Public Secrets and commented:
More evidence (from Europe!) that high tax rates harm economic growth and general prosperity. Barack Obama, take note.
Increased taxation enriches the incompetent, corrupt and discriminatory cronies in the public sector unions. Ontario allocates at least 55% of its budget on public sector workers.
female teachers such as Mary Gowans uses her bloated salary to lure underaged male students to her home, and then deny the student’s accusations
in court. It should be mentioned that the feminist movement influenced the Judge’s decision to drop the case and enforce an innocent ruling on the male student’s accusations.
On the other hand, white female administrators such as Gordana Stefulic appoint lawyers such as Giselle Basanta and Micheal Lee to file SLAPP lawsuits in every direction of the
internet with an aim to censor the public about the conduct of Gordana Stefulic.
The most recent lawsuits which were filed by Gordana Stefulic were:
1) Ontario Principals’ Council et al v. Giglinx Global Incorporated – Justia
2) In Re Application of Ontario Principals’ Council, Gordana … – Justia
3) Ontario Principals’ Council, et al. v. Hall, et al. – Justia Dockets …
4) ORDER GRANTING-IN-PART EX PARTE APPLICATION FOR SUBPOENA OF TOPIX IN AID OF FOREIGN DEFAMATION SUIT by Judge Paul
SLAPPs aim to scare people from exercising First Amendment rights, like writing a review online, blogging on an issue of public interest, or speaking to the public about alleged teacher-student sex scandals. Infamous teachers such as Gordana Stefulic abuse the legal system to file SLAPP lawsuits to instill a sense of fear to anyone who speaks out against her. The feminist movement and attorneys such as Giselle Basanta are also accountable for the infringement of free speech rights in the USA and Canada.
When will Canadians wake up and see that the public sector unions and their cronies have no interest in the public, and seek to enrich themselves at the expense of democracy, civil rights and transparent and fair governance.
[…] 2. It should go without saying (but I’ll say it anyhow) that ever-higher tax rates impose ever-higher levels of deadweight loss. […]
[…] 2. It should go without saying (but I’ll say it anyhow) that ever-higher tax rates impose ever-higher levels of deadweight loss. […]
[…] 2. It should go without saying (but I’ll say it anyhow) that ever-higher tax rates impose ever-higher levels of deadweight loss. […]
[…] not everyone is on board, The class-warfare crowd will never like a flat tax. And Washington insiders hate tax reform because it undermines their […]
[…] we can at least hope that their minds will be opened to subsequent steps, such as understanding the economic impact of punitive tax rates, recognizing that high tax rates won’t necessarily collect more revenue, or realizing that […]
[…] we can at least hope that their minds will be opened to subsequent steps, such as understanding the economic impact of punitive tax rates, recognizing that high tax rates won’t necessarily collect more revenue, or realizing that […]
[…] varying ways, all these candidate have put forth relatively detailed proposals that address high tax rates, punitive double taxation, and distorting tax […]
[…] someone’s average tax rate (total tax payments/total income) requires some very big (and very bad) decisions on marginal tax rates (tax paid on the last dollar of income/last dollar of […]
[…] tax rates, which are what matters most for incentives, are even […]
[…] varying ways, all these candidates have put forth relatively detailed proposals that address high tax rates, punitive double taxation, and distorting tax […]
[…] a clever line is not the same as smart policy. Promising not to raise top tax rates to 90 percent or above is hardly a sign of moderation from […]
[…] a clever line is not the same as smart policy. Promising not to raise top tax rates to 90 percent or above is hardly a sign of moderation from […]
[…] who is infamous for a theory rejected by the vast majority of economists and a tax plan that would cripple the economy and impose harsh misery on poor people, has now decided to pontificate on inequality and terrorism. Here’s some of what’s […]
[…] who is infamous for a theory rejected by the vast majority of economists and a tax plan that would cripple the economy and impose harsh misery on poor people, has now decided to pontificate on inequality and terrorism. Here’s some of what’s being […]
[…] I was irked by the myopic fixation on income inequality, the support for class-warfare taxation, and the reflexive advocacy for more government spending, but messing around with the price system […]
[…] You don’t get higher wages by seizing ever-larger amounts of money from […]
[…] score. As you can see, our worst category is “government size.” In other words, we tax too much and spend too […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] again, the authors are spot on. Taxes undermine incentives to be productive by driving a wedge between pre-tax income and post-tax consumption, so you have to look at levies […]
[…] like tax cuts because I’m an economist and we’ll get more growth if penalties on productive behavior are […]
[…] like tax cuts because I’m an economist and we’ll get more growth if penalties on productive behavior are […]
[…] like tax cuts because I’m an economist and we’ll get more growth if penalties on productive behavior are […]
[…] I don’t particularly care whether there are tax cuts for rich people. But I care a lot about not having tax policies that penalize the behaviors (work, saving, investment, and entrepreneurship) that […]
[…] I don’t particularly care whether there are tax cuts for rich people. But I care a lot about not having tax policies that penalize the behaviors (work, saving, investment, and entrepreneurship) that […]
[…] Speaking of bad advice, let’s now contrast the sensible recommendations of Ms. O’Grady to the knee-jerk statism of the Organization for Economic Cooperation and Development. In a new report on Costa Rica’s tax system, the OECD urged ever-higher fiscal burdens for the country. Including destructive class warfare. […]
[…] the Economic Recovery Tax Act of 1981) was good because the President and his team ignored the class-warfare crowd. They didn’t care whether all income groups got the same degree of tax relief. They […]
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