taxes

I cannot claim to be anything remotely close to an economist (though neither can McCain or Obama). Still, some (to some extent unconventional) very high-level thoughts about taxes - thoughts not having to do with complicated graphs, econometric data, etc. (and so high-level thoughts I have a hard time seeing refuted by complicated graphs, econometric data, etc., though I'm open to being corrected on that).

1. The level of taxation only affects WHO will be spending HOW much money (in particular, private individuals generally vs. private indivuals who get money from the government vs. the government itself), and so only affects WHICH sectors of the economy get stimulated. As a result, there is nothing intrinsic to leaving money in the hands of private individuals (so that they can spend it) such that doing so necessarily leads to more/better economic stimulation. And, at least when it passes through the hands of the government -- IF the government does a good job -- it can consciously and intentionally direct where money gets spent so that the economy is overall more/better stimulated.

2. The traditional, Adam-Smith-type, "invisible hand" argument for leaving private individuals alone to spend money how they wish has nothing to do with economic stimulation. Rather, it has to do with with efficiency in satisfaction of needs/desires on the part of goods and services produced by the economy, whatever its degree of "stimulation". And where (unlike old Soviet 5-year plans, which involved the government itself placing [very enormous] orders for goods and services) the government simply takes tax money and gives it to other private individuals (almost always with restrictions, of course, e.g., Medicare), it seems less like a question of WHETHER needs/desires successfully get met by goods and services, but rather WHOSE. (So the "redistributive taxation" of welfare capitalism is, in at least one very important respect, very different from the spending of Soviet-like centralized governments.) In other words, when it comes to the issue of "information transfer re. needs/wants across various sectors of the economy", there is nothing intrinsically inferior when it comes to welfare capitalism (as compared to pure free-market capitalism).

3. Another argument for leaving money in the hands of private individuals that I often hear is: when this happens, many private individuals will save some of that money, leading to a larger supply of money in the lending market, reducing interest rates, increasing entrepreneurship, etc., stimulating the economy. But (and here is in effect a very special case of point 1 above) absolutely nothing prevents the government, after acquiring money through taxation, from itself putting money into the savings market.

4. Taxation does inherently involve unavoidable money lost due to administration and transaction costs. However, that does absolutely nothing to show that more rather than less taxation inherently involves unavoidably greater money lost due to administration and transactions costs. E.g., however high or low taxes are, the IRS will get the same number of tax returns in the mail every year. If anything, all these exceptions and special cases ("loopholes") which help to reduce taxes for some (much of this "some" being very rich individuals) only add to administration and transaction costs.

5. A different argument I often hear is: taxation disincentivizes, i.e., people are less likely to work harder (in order to get that promotion, or whatever), since what they might possibly get from working harder, namely, higher income, will be compromised by money lost to taxes. Undeniably, taxation disincentivizes IN THIS RESPECT. But if, e.g., the government directs more money towards healthcare, there becomes a greater demand in various labor markets related to healthcare, increasing salaries with such jobs, incentivizing them. So there can be no general argument that taxation necessarily disincentivizes OVERALL. And, when the government is consciously and intentionally directing where large-scale amounts of money go, it can, in principle (at least if it knows what the hell it is doing), direct it in ways which do better by way of incentivizing overall. In fact, nothing at all stops the government from "reverse taxation" for some individuals, i.e., adding some (relatively) fixed percentage to their income, for purposes of incentivizing.

6. Another very common argument is empirical: examination of historical cases of tax increases and decreases shows an overall boost to the economy when taxes are decreased and an overall hit to the economy when taxes are increased. I agree that examining the empirical economic evidence is very important. But:

A. Uncontroversial empirical economic evidence is very hard to come by, since, in these matters, cause-and-effect is extremely hard to distinguish from mere before-and-after. Did the tax decreases two years ago really lead to the increased economic performance now, or is that instead just an accidnetal fact, as the increased performance is really due to those huge newly discovered oil reserves in northern France (or the revolutionary technological innovation in computer design, or the recent very good weather seasons [fewer hurricanes, and just the right amount of everything else for crops to grow extremely well], or ..., or ...)?

B. Even when there is uncontroversial empirical economic evidence, one can still question how economists make the value judgments necessary for proclamations of the "OVERALL better/worse sort". Is it just a wash (i.e., neutral), or rather good (or even bad), when some economic cause has the economic effect of causing 100,000 rich people each to lose $10,000 a year income, but 100,000 poor people each to gain $10,000 a year in income?

C. To the extent that I have any sense of what the empirical economic evidence has to say on the matter, it points only in the direction of CHANGES IN TAXES having effects: a decrease in taxes will give the economy a temporary overall boost, an increase in taxes (at least given how those tax revenues have traditionally been spent) will give the economy a temporary overall hit, but a CONSTANT HIGH LEVEL OF TAXATION is NO BETTER OR WORSE than a CONSTANT LOW LEVEL OF TAXATION. (My sense about this comes from my macro-econ class at College of Idaho as an undergrad. I'm quite confident that, minimally, my professor was being very honest [i.e., had no agenda in reporting such putative empirical economic evidence] since he was very explicitly and unabashedly an extreme financial conservative. In fact, for this reason, he seemed a bit unnerved when telling us about this.) So, as president, while I would increase taxes (at least for some individuals), to the extent that empirical economic evidence suggests any negative consequences at all, they will be temporary.

7. Perhaps the most common argument is: government simply spends tax money stupidly. I won't deny there is a large degree of truth in this. For example, if the government spends $1 billion funding a pointless bridge, then (although there WILL BE stimulation to the "bridge-building" part of the economy), to that extent, it will do very poorly by way of efficiency in satisfying needs/wants. But there can be no general, exceptionless argument of this sort. It depends on the composition of the government, i.e., who is in the government doing the spending. And I say to you: as president, I will spend tax revenues in ways that are VERY EFFICIENT when it comes to satisfying needs/wants, in ways that OVERALL stimulate the economy more/better, and in ways that OVERALL incentivize (rather than disincentivize).

By the way, I fully recognize that none of this is an argument FOR higher taxes. Instead, it's a way of saying that all of the most common standard, general arguments against higher taxes seem extremely problematic.

My argument for higher taxes will come in other places, where I talk about very worthwhile projects, etc. which can only get off the ground and succeed with funding that ultimately comes from tax revenues.