22 of 39

Yes

Write now Article Tools

Page 2 of 3

in government spending really costs all of us way more than $1 dollar. That is because taxes cause "deadweight losses." For example, if you're working a regular wage job and would like the start a small business on the side, the additionally income puts you in a higher tax bracket, and this dissuades you from your entrepreneurial plans. As a results, the nation loses the additional production and the innovative ideas that you could have added to the economy.

Deadweight losses represent at least 25 percent of each additional dollar of federal income tax revenue: the Office of Management and Budget incorporates a 25 percent deadweight loss measure into federal cost/benefit analyses. That means that new federal spending must be shown to generate benefits at least 25 percent greater than their explicit tax costs because of the extra 25 cents on the dollar damage created by raising taxes.

Reducing taxes, however, always as a greater benefit on the economy than increased government spending, even taking into account this 25% deadweight cost. For example, an estimate of President Bush's original tax cut plan by Harvard professors Martin Feldstein and Daniel Feenberg in 2001 found that it would reduce deadweight losses by 38 percent of the value of the $1.6 trillion tax reduction, or about $600 billion over 10 years. Moreover, a series of statistical studies by tax economists Robert Carroll, Douglas Holtz-Eakin, Mark Rider, and Harvey Rosen has found that personal income tax rate cuts, such as occurred in 1986, have a substantial positive effect on small business hiring, investment, and growth.

In conclusion: it's well known that there is a strong correlation between a growing economy and low taxes. From 1776 until 1996, GDP per capita grew at the historically unprecedented rate of 458 percent. It effectively doubled every 40 years. But since 1978, the per capita growth rate in the United States has slowed considerably. That is, per capita GDP is still growing, but more slowly than ever before in U.S. history. This is directly correlated with our increasing tax burden. The ever-growing tax burden does far more harm than government intervention does good.

Just about all the arguments for reducing our tax burden are compelling, but they are too much to go into in a short article. Therefore, I'll point you to further recommended reading:

Singleton & Slivinski, "Capital Markets: The Importance of Lower Taxes." Cato.org white paper, 09 . 13 . 1999.
Adams, Charles. "Those Dirty

• << previous page
• 1
• 2
• 3
• next page >>

Add your voice

Know something about Supply-side economics: Do lower taxes increase a country's economic health??
We want to hear your view. Write now!