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Should we hand tax policy over to a commission?

by Greg Krehbiel on 2 October 2017

Conservatives love to cite the example of JFK, who cut tax rates on the wealthy and increased total revenue. The theory is that they invest that money back in the economy, create jobs, etc., which causes more overall economic activity, so while the government is taking a smaller slice of the pie, there’s a bigger pie.

Nowadays, conservatives refer to the wealthy as “job creators,” and try to make it sound as if we only cut them a break on their taxes, they’d start more businesses and hire more people.

I’ve always found that to be an overly simplistic view of things. Certainly there is a point at which high tax rates are counter-productive (i.e., they bring in less revenue), but there is also a point at which cutting taxes further isn’t going to yield that JFK-like benefit. There are diminishing returns in both directions.

Liberals like to say that we need to get more spending money in the hands of the poor, since a higher percentage of their income goes to buying tangible goods, and that powers the economy. If businesses are paying their workers so poorly that the workers can’t afford to buy anything, that’s not going to cause growth either. We want money to circulate in the economy.

Why do we have to choose between these concepts? Why can’t we say that there are lots of different factors that affect economic growth, and we have to find the right mix of incentives?

Well … we can say it, but how do we make it happen?

One potential problem is that the people who make the tax rules — Congress — are beholden, on the one hand, to donors and lobbyists (who are interested in their own things, and not the national benefit), and, OTOH, to the voters, who respond best to simple messages.

Let’s say the goals for our tax system were to maximize growth, government revenue, and prosperity. (I’m not so sure about #2, but just go with it for the time being.)

And let’s say there are several different factors that control these things, and that they interact in complicated ways. I don’t know what they all are, but to name a few off the top of my head, how about (1) things we tax, (2) types of taxes, (3) the rates and brackets, and (4) regulations.

Who is best suited to take all these factors and optimize them towards those goals?

Probably not Congress.

2017-10-02  »  Greg Krehbiel

Talkback x 2

  1. Dave Krehbiel Dave Krehbiel
    2 October 2017 @ 9:28 am

    I think it would take a constitutional amendment of some sort. Congress will not vote to reduce or relinquish their power over taxes.

    If I were King, I would have some sort of flat tax or energy tax or consumption tax or something, and I would eliminate tax exemption for “nonprofit” organizations.

  2. Greg Krehbiel Greg Krehbiel
    3 October 2017 @ 7:35 am

    I don’t know that they need to relinquish their power. They just have the commission do the work and then approve it.

    But you’re right that they would never do it. They love to tinker and meddle.

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