What’s the right way to define good tax policy? There are several possible answers to that question, including the all-important observation that the goal should be to only collect the amount of revenue needed to finance the legitimate functions of government, and not one penny above that amount.
But what if we want a more targeted definition? A simple principle to shape our understanding of tax policy?
I’m partial to what I wrote last year.
…the essential insight of supply-side economics…when you tax something, you get less of it.
I’m not claiming this is my idea, by the way. It’s been around for a long time.
Indeed, it’s rumored that Reagan shared a version of this wisdom.
I don’t know if the Gipper actually said those exact words, but his grasp of tax policy was very impressive. 
And the changes he made led to very good results, even if folks on the left still refuse to believe the IRS data showing that Reagan’s lower tax rates on the rich generated more revenue.
In any event, our friends on the nanny-state left actually understand this principle when it suits their purposes. They propose sugar taxes, soda taxes, carbon taxes, housing taxes, tanning taxes, tobacco taxes, and even “adult entertainment” taxes with the explicit goal of using the tax code to reduce the consumption of things they don’t like.
I don’t like the idea of government trying to dictate people do with their own money, but these so-called sin taxes generally are successful because supply-siders are right about taxes impacting incentives.
But that doesn’t mean it’s always popular when statist governments impose such policies. At least not in Belarus, according to a story from RFERL.
Protests over a new tax aimed at reducing social welfare spread beyond the Belarusian capital, as thousands took to the streets in Homel and other towns. Along with similar protests two days earlier in Minsk, the February 19 demonstrations were some of the largest in the country in years. In Homel, near the border with Russia, at least 1,000 people marched and chanted slogans against the measure, known as the “Law Against Social Parasites.”
But what are “social parasites” and what does the law do?
…the law…requires people who were employed fewer than 183 days in a calendar year to pay a tax of about $200. …The measure is aimed at combating what President Alyaksandr Lukashenka has called “social parasitism.”
For what it’s worth, the Washington Post reports that the government had to back down.
The protesters won. On Thursday, Lukashenko announced that he won’t enforce the measure this year, though he’s not scrapping it. “We will not collect this money for 2016 from those who were meant to pay it,” he told the state news agency Belta. Those who have already paid will get a rebate if they get a job this year. The law, signed into effect in 2015, is reminiscent of Soviet-era crackdowns against the jobless, who undermined the state’s portrayal of a “workers’ paradise.”
That’s good news.
If people can somehow survive without working (assuming they’re not mooching off taxpayers, which is something that should be discouraged), more power to them. It’s not the life I would want, but it’s not the role of government to tax them if they don’t work. Or if they simply choose to work 182 days per year.
Mr. Lukashenko should concentrate instead on taking the heavy foot of government off the neck of his people. According to the most-recent Index of Economic Freedom, Belarus is only ranked #104, with especially weak scores for “rule of law” and “open markets.”
If he turns his country into a Slavic version of Hong Kong, based on free markets and small government, people will be clamoring to work. But I’m not holding my breath expecting that to happen.
P.S. While government shouldn’t tax people for not working, it’s also a bad idea to subsidize them for not working. Indeed, there’s even a version of the Laffer Curve for poverty and redistribution.
P.P.S. Given the low freedom ranking for Belarus, I suspect the real parasites in that country (just like in the U.S.) are the various interest groups that are feeding from the government trough.
P.P.P.S. On an amusing note, here’s the satirical British video on killing the poor instead of taxing them.
Reblogged this on Public Secrets and commented:
Remember, welfare traps people in poverty. It’s not a hand helping you up: it’s a hand grabbing your ankle and holding you back.
Dan:
You continue to recommend elimination of all redistribution, and then you show what happened when a $200 charge is applied. What do you think will happen if you eliminate $50,000 a year in benefits??? (MA from CATO)
I agree with Phineas that the current welfare traps people in poverty.
Instead we need a federal UBI set at the poverty line. Blue states can make up the difference and then find the money to pay for it through taxes. Red states can leave additional funding to charities, with individuals voluntarily contributing. This incubator approach will allow the best state programs to be revealed, and we all know what the results will show.
The current system is awful, but you are not going to get rid of it by proposing the elimination of ALL support.
[…] Welfare, Taxes, the Nanny State, and Supply-Side Economics […]
Think out of the box. The premise that taxing produces less is simplistic and wrong.
Imagine a federal income tax that ranged from 8% to 28% that was paired with a wealth tax ranging from 2% down to zero (and no payroll taxes). To encourage economic mobility, a sum of $500,000 could be saved wealth tax free (for retirement, health care or education). Wealth taxes paid over a lifetime would also offset estate taxes of 28%. Corporate tax reform would be as simple as replacing the payroll tax with a 4% VAT and lowering the C corporation tax to 8%.
The inverse taxation of wealth and income, combined with a million-dollar exemption for families incentivizes lifetime productivity and middle class savings. Most workers would gladly pay a 2% wealth tax to lower their income tax rate to just 8% (about the same as they now pay in payroll tax). Some high profit wealthy people might make the same election but rich people with modest profits would be inclined to choose a higher income tax to reduce or eliminate any tax on their wealth. With a system that self-separates the productive/profitable wealthy from the non-productive, the inverse taxation of wealth and income encourages productivity and wealth.
I agree with the premise that government taxation should not be a penny more than necessary to run the government. Today governments benefits are based on income and family wealth is not considered. There is a role for government to help those with low income and no wealth but it is wasteful for government to give benefits or tax expenditures (credits, deductions, special rates, deferrals and exemptions) to millionaires who no longer need any government help. With the inverse taxation of wealth and income the government would have the necessary data to focus government spending on need an not waste tax dollars on wealthy families with modest income.