Monday, February 21, 2005

Welfare States and Redistribution

If you want more government, you are going to need higher taxes. As taxes get higher, it becomes more important that they are efficient. Destroying 30 cents to gather a dollar is bearable when you're gathering 30% of GDP (roughly where the US is now). Destroying 30 cents on the dollar when you are taxing at 50% of GDP means you are taking about 15% of your economic productivity and burning it.

Taxes become more efficient when levied on things that 1) can't run away and 2) are numerous. This means taxing labor, or better yet consumption, over capital, and taxing lots of people a moderate amount instead of a new people a lot. You will note how the larger state and efficient taxation are at odds with each other. This article is very long winded, but has some good detail.

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