Sam, you’re still not getting it. While you deny doing so, all your arguments continue to be based on the idea that money somehow disappears when the government touchs it. Deadweight loss only distorts economic transactions - it causes people to make different decisions. Nobody’s shown that those different decisions are better or worse than the untaxed ones.
So the government collects some tax money. Some people will choose not to do some economic transaction and a certain amount of wealth goes uncreated. Other people will do their planned transactions and the government collects some money. And the government then spends the money it collected. And that transaction may create more wealth than was lost. So there is a net deadweight gain as it were.
Deadweight loss is only a factor if you focus on one transaction and decide if one person is gaining or losing. But you can’t ignore the externalities.
What’s strange is that this has been explained to Sam Stone several times in several ways. It seems that a segment of the economic community simply wants to redefine “deadweight loss” to mean “money taken by the government.” Then, it’s easy to call all taxes bad, because deadweight loss is bad, and you’ve defined taxes as deadweight loss.
A fleemarket that charges people $10 per table, or a stock exchange that charges commissions, is creating a deadweight loss. That $10 comes out of the the supply/demand curve.
But it doesn’t take a genius to realize that having an organized fleemarket, or centralized stock market, can increase sales. There is a net benefit, that the $10 provides, more than making up for the cost.
Taxes are only a deadweight loss if they do nothing for the economy or society in general. If instead, they actually provide for a society that allows more money to be made, they’re exactly the opposite.
There are other aspects that can prevent marginal trades from happening, appropriate taxation can overcome those barriers and increase marginal trade.
I think it would help if you bold double-underlined the part where deadweight loss can be more than compensated for by the benefits of good government (I’m not being facetious, you do say it, you just may not be emphasizing it enough). Sure a marginal investment might not be made because the after tax return is not high enough to pay the cost of capital but that money doesn’t vanish into thin air, it can be used to build roads or educate children or provide courts and police protection.
So your argument isn’t that government doesn’t improve the econmy, your argument is that they don’t improve the economy enough to make up for the deadweight loss of taxes. Or more specifically the marginal dollar spent by the fed would be better off being spent by the private sector. That is a matter of opinion but at some point almost everyone would agree that the marginal dollar is better spent by the government (contra, see the stupid idiot who let his house get burnt down because he didn’t want to chip $75 into the kitty for fire protection).
Taxes always distort econmic behaviour away from optimality. So tehre is always deadweight loss but if the money is used well, the economy can MORE than make up for the deadweight loss. Roads, schools, armies, health care and social security are all examples of where the government can create more value in society by taxing and spending.
I’m sure Sam will be along to correct the misconceptions that I see.
He isn’t saying all taxation is bad. What I took him to say was that by taxing something that the government will get the exact same benefit out of as the private sector, you are actually losing money due to the deadweight loss.
Therefore for the government to provide a real benefit, it would have/need to be done better than the private sector could do it.
Not emphasizing it enough? I was careful to qualify it every time I mentioned deadweight loss. For that matter, I was careful to acknowledge that there are other deadweight losses, and specifically referred to “deadweight loss due to taxation”. I even went out of my way to point out specific examples where deadweight loss due to taxation could be used to overcome other deadweight losses and be a net benefit. In the case of significant externalities to market transactions, for example.
Sometimes I think you guys don’t actually read what I write, but simply skim it looking for keywords you can use to build an argument against a stereotype.
Wait a second, are you sure thats true? When taxes are used to redistribute grossly disparate wealth (eg progressive taxation to pay for social safety net, a direct transfer of money from the rich to the poor, the effect of that tax would not have to be greater than the effect of private welfare, now would it?
I mean i understand taht taxes distort economic behaviour but why does the government actually have to do things BETTER than the private sector in order to make society better off? Why can’t the government do it just as well as the private sector but do things the private sector would not do (or does that mean it does it better than the private sector because the private sector would do nothing)?
That’s why you should bold double underline the caveats. You spend a hundred words saying “taxes are horrible” then one sentence saying “unless they aren’t horrible”
Except that I didn’t. I devoted entire paragraphs to various caveats. It’s not my fault if you and others don’t bother to read it.
I find it bizarre that not only am I called out to make sure I provide rebuttals to my own arguments, but now I’m supposed to highlight them to save my opponents the difficulty of having to read carefully.
A better plan is for me to simply dismiss their arguments if they can’t be bothered to read mine. I’m sure plenty of people reading this thread had no trouble with it.
I’m not sure why you don’t see that the evidence you’re providing is supporting the opposite argument. Growth is the difference from the baseline. You cannot directly compare growth rates when the baselines are very different. It’s pretty simple: China grew quickly thanks to becoming more market-oriented (the baseline was very low since being centrally-planned caused it to become very poor). Such sustained growth simply can’t happen in a rich country.
Let’s say that China and the U.S. are like two people who are adjusting their workout routines. Joe (China) never worked out and now he’s starting to work out twice a week. He will improve quickly. That’s what happened in China: market-based reforms caused quick growth from the very low baseline. Bill (U.S.) is an experienced professional athlete, used to training for hours a day for many years. Even if he continues his workout routine, his gains will be much less dramatic, if any. That’s what’s happening in the U.S. It does not mean that working out more (economy becoming more free) is bad. Frank (Venezuela) would be like somebody used to working out three times a week who now decides to work out just once a week. He will decline.
Start with this question to your friend: Can you name a socialist country with a heterogeneous population that you’d use as the poster child for the success of big government and fiscally liberal policies? The USSR, maybe? Cuba, maybe? A handful of very homogenous, stable populations (Sweden, say) have had intermittent success, but of course it’s easier to create effective governments for cohesive populations.
In the 50s, the US was fiscally conservative and had small government relative to today. Looking at marginal income tax rates is a very poor way to define “liberal” or “socialist.”
Is your friend’s supposition that a high marginal rate is the best way to decide how “liberal” or “socialist” a fiscal policy is?
For this fiscal conservative and governmental libertarian, what I define as plunking me in those categories are these things:
Spend what we take in. Don’t borrow except for emergencies. A World War threatening the geopolitical structure is an emergency. Invading non-fixable Muslim countries electively is not; bailing out mortgagees or the folks who traded on them is not; healthcare is not; retirement is not (all of those things might be important to do–just not with borrowed money).
In the 50s, the goal was to pay off the WWII deficit, and they actually made a lot of progress toward it.
Smaller, rather than bigger government. In the 50s, the Federal budget was about 50-80B dollars. Today it’s 3 Trillion-ish, about a 60-fold increase. Table 1.1, and others, here.
Tax everybody. Right now the top 1% pay about 40% of Federal Income taxes. The top 25% pay 85% of all Federal taxes. What was the equivalent number in the 50s? I don’t know the answer to that, but I do know the bottom tax bracket in the early 50s was about 20% up to 4 or 5K of income. When we all have a stake, we all get a little more responsible about the growth of govenment and how government spends its money. When only a top percentage of people are carrying the government and we borrow any deficit, then government grows increasingly inefficient until the country’s capitalist engine craps out (according to us conservatives), and 75% of the population doesn’t really care or understand. They aren’t paying for it.
As a high-income earner, I don’t care (from a fairness standpoint) if they raise my tax rates back to 50s levels as long as they are raised across the board all the way down. I do think high taxes and big government are wasteful and kill jobs, and I do think borrowing from the future to fund that big government is going to kill our country, period.
Read this article for a conservative take, if you like, on taxes and fiscal policy.