Pissing Down Your Leg

Thoughts on Economics and Economic Policy

Taxes Aren’t Bad

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Jonathan Cohn has a nice post about the benefits of taxes. He points out all of the nice things that taxes buy and that U.S. taxes are fairly low when compared to other OECD countries.

One of the bugaboos of the right is that higher taxes will lead to lower economic growth. There is no evidence of this, either in our own country’s history, or in the international data. In fact, a simple (quadratic) regression on U.S. post-WWII data suggests that a marginal income tax rate on the top 1% (those earning over $900k) of between 40-45% would maximize growth. If you look at the top 0.01% (those earning over $17 million) that growth-maximizing marginal tax rate is over 70%. In an earlier post I showed that we could eliminate the corporate income tax by raising top rates to only 50% (maybe a bit higher to actually balance the budget).

There may or may not be a causal relationship between higher taxes on the rich and higher GDP growth, but it is certainly possible. Higher taxes allow the government to spend more on infrastructure and education, both important for economic growth. Currently, higher taxes would allow the government to provide health insurance for all. This should increase the health, especially of the working lower middle class (who are the ones most often without insurance), and benefit economic growth.

The rich, very rich, and wannabe rich on the right have certainly stepped up their rhetoric over the last decade and seem to have convinced most politicians that higher taxes are evil things. But this is clearly not always the case. My total health insurance premium is about $19,000 a year for an excellent family coverage plan. That amounts to about 25% of my gross salary. If we put in a Medicare-for-all plan, I would bet those costs would fall fairly substantially (with only a small drop in coverage, after all, all providers would be in the network). I would gladly pay an extra 15-20% in taxes for such a plan, assuming that my salary is increased by the amount of my current coverage. The economic (and social) benefits of covering everybody, I would bet, would be significant.

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Written by Liam C Malloy

April 18, 2011 at 3:19 pm

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