Skip to comments.Shocking: Study Admits Income Taxes Penalize Growth
Posted on 05/18/2013 10:38:01 AM PDT by Kaslin
I have to start this post with a big caveat. I’m not a fan of the Paris-based Organization for Economic Cooperation and Development. The international bureaucracy is infamous for using American tax dollars to promote a statist economic agenda.
Most recently, it launched a new scheme to raise the tax burden on multinational companies, which is really just a backdoor way of saying that the OECD (and the high-tax nations that it represents) wants higher taxes on workers, consumers, and shareholders.
But the OECD’s anti-market agenda goes much deeper.
Now that there’s no ambiguity about my overall position, I can admit that the OECD isn’t always on the wrong side. Much of the bad policy comes from its committee system, which brings together bureaucrats from member nations.
The OECD also has an economics department, and they sometimes produce good work. Most recently, they produced a report on the Swiss tax system that contains some very sound analysis – including a rejection of Obama-style class warfare and a call to lower income tax burdens.
Shifting the taxation of income to the taxation of consumption may be beneficial for boosting economic activity (Johansson et al., 2008 provide evidence across OECD economies). These benefits may be bigger if personal income taxes are lowered rather than social security contributions, because personal income tax also discourages entrepreneurial activity and investment more broadly.
I somewhat disagree with the assertion that payroll taxes do more damage than VAT taxes. They both drive a wedge between pre-tax income and post-tax consumption.
But the point about income taxes is right on the mark.
Interestingly, the report also endorses tax competition as a means of restraining the burden of government spending.
Evidence also suggests that tax autonomy may lead to a smaller and more efficient public sector, helping to limit the tax burden and improve tax compliance… Efficiency-raising effects of tax autonomy and tax competition on the public sector have also been reported in empirical research with Norwegian and German data… Tax autonomy generates opportunities to choose the level of public service provision and taxation, although in practice such “voting with your feet” seems mostly limited to young, highly educated and high-income households. Decentralised tax setting also fosters benchmarking of the performance of jurisdictions belonging to the same government level by voters, even in the absence of “voting with your feet”.
The report also notes that tax competition has reduced corporate tax rates.
Tax competition is likely to have contributed significantly to lowering corporate tax rates in Switzerland over the past 25 years. Indeed, empirical evidence shows that the responsiveness of sub-national governments to tax changes of other subnational governments (“tax mimicking”) is the strongest in the case of corporate taxation (Blöchliger and Pinero Campos, 2011). …Progressive corporate income taxes harm incentives for businesses to grow. Since growing businesses are likely to be high performers in terms of productivity, such disincentives are likely to hit high-performing businesses the most, with losses to aggregate productivity performance, which has been modest in Switzerland relative to best-performing high-income countries.
P.S. This isn’t the first time the economists at the OECD have broken ranks with the political hacks that generally control the bureaucracy. In a 1998 Economic Outlook (see page 166), they wrote that “the ability to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively.”
And in another publication (see page 1), the economists noted that “legal tax avoidance can be reduced by closing loopholes and illegal tax evasion can be contained by better enforcement of tax codes. But the root of the problem appears in many cases to be high tax rates.”
These passages sound like they could have been authored by Pierre Bessard!
P.P.S. I hasten to add that none of this justifies handouts from American taxpayers to the Paris-based bureaucracy any more than occasional bits of rationality from the World Bank (on government spending), IMF (on the Laffer Curve), or United Nations (also on the Laffer Curve) justify subsidies to those organizations.
Everyone knows that taxes penalize growth.
Which is why when a city (ANY city liberal or conservative) wants to attract a large company to do business there, they offer them TAX INCENTIVES!
If liberals actually believed the tripe they spew the higher taxes makes everything better, then when trying to recruit businesses to come to their city they would tout their extremely high taxes as the main reason to locate there!
A so-far unnoticed but very deadly threat is GOVERNMENT oppression and restriction of food production in America. Your God-given right is to be able to buy a boat and make a living as a fisherman if you want. GOVERNMENT has removed that with propped-up "studies" of false scarceties to justify quotas that ultimately prevent Americans from fishing their own coastlines.
That's just seafood. GOVERNMENT does the same to farming food crops and ranching, and also to energy production. The individual rights to produce food and energy on American land are GOD GIVEN -- America's government is in the process of removing those rights. The right to grow and sell food to your neighbors, the right for an industry to self-form and maintain a resource, as American fishermen did for decades because it was in their own interest.
GOVERNMENT has come to penalize freedom. It must be restored to the tool of protecting freedom.
That is the intention! The income tax was created to take from productive people and give to slackers who vote democrat.
Please, Dr. Mitchell, pile on! We have the IRS on the defensive, and Congress is poised to beat the IRS up some more!
What we need are some KISS principle arguments to rid ourselves of this evil monstrosity, the income tax and the IRS!
100 years is eFReepingnough! Let us replace the income tax with the FairTax and abolish the IRS!
Yes all of my friends, relatives, neighbors, and even some people i don’t know are asking...
is this the time to get rid of the 16th?
The income tax is a class warfare tool for the left to draw power from. Always has been. Always will be.
1) Completely and totally fire every IRS employee, raze all IRS facilities, and then salt the earth!
2) The federal government sends out 50 bills to 50 governors with a tax bill based upon the population of the last census.
3) The states find a way to pay it.
Out of 50 states, the best and least intrusive tax collecting methods will emerge that cause the least pain to the citizen, businesses, and the state economy.
That is why the Demo-Marxists and GOP-Progs **LOVE** the IRS!
I would not object to a tax system such as that one. It is probably going to be a hard sell, though.
Have you had any luck getting Congress to support such a plan?
In fairness, both sides have used the tax code to benefit their supporters and their agendas.
That’s just common sense!
Have you had any luck getting Congress to support such a plan?
No! ( sitting here laughing!) :-)
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