Tuesday, April 17, 2007

Should the lower 40% of earners pay taxes?

Ari Fleischer writes a WSJ op-ed criticizing the federal tax system. He is unhappy about the burden the top earners have and that 40% pay no taxes. It is interesting to read, because a lot of people feel this way.

A few points- one, despite this tax burden the high earners are earning even more, and even more proportionally, and I'll bet few will argue that taxes have done a lot to discourage earning income. The big problem with taxes, which many fail to bring up, is that they are distortionary. The income tax is distortionary (though not as much as the tax-haters say), so I would use this as another opportunity to talk about pigouvian taxes (taxing things we want to use less of, like cigarettes and gas). Also, the political economy of 40% not paying taxes is interesting because when they don't pay ANY they are more likely to support expansion of the state. If that 40% became 50%, I'll be there would be a lot of interesting consequences. In any regard, almost all perspectives can agree that simpler taxes would be better. Complicated tax codes only allow for special interests to get their loopholes in there, as this piece brings up an example of.

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