24 September 2015

Enough of this low tax nonsense

If conservatives believe in low taxes in order to keep government small, so be it, but when they insist that low taxes are necessary for a healthy economy, they are talking rot, parroting a mantra that has been utterly disproved.

The low tax theory can in fact be refuted with one word: Sweden. I could use other words, e.g. Denmark, Norway, the Netherlands, etc., but Sweden will do. Sweden has the world's second highest taxes as a per cent of GDP (Denmark has the highest). It also has a per capita GDP higher than ours and is ranked by the World Economic Forum as having the world's sixth-most competitive economy. (We rank 14th.) In other words, with a tax rate of 47 per cent of GDP compared to our 33 per cent, it performs as well or better than us economically. And it does this with a fraction of the natural resources that we possess. For instance, it has no oil or natural gas—to a Canadian, the essentials for a strong economy.

A number of other countries can tell a similar story. The proof is irrefutable. Indeed, we can go further. Not only do high taxes not preclude a robust economy, they may be necessary to achieve a nation's best economic performance. After all, in the modern world an optimal economy requires excellent social infrastructure—a healthy, well-educated population in which all members can fulfill their potential. And it requires excellent physical infrastructure—good roads, docks, water and sewer facilities, etc. And excellence costs money. Low taxes can't afford it.

How taxes are applied is another matter. Different taxes create different incentives and disincentives, so which taxes a government emphasizes can be important to economic health, and this certainly deserves debate. But that high overall taxation is in itself a disincentive to an economy is an argument deserving of a quick trip to the ideological dumpster.

1 comment:

  1. Nothing is more nonsensical than the self-serving ideology market fundamentalists spout off about incentive-based taxation.

    The failed hypothesis says cut investment and income taxes (personal and business) and this will encourage people and businesses to produce more. Because apparently the higher the tax rate the less inclined people will be to work, run their business competently, invest their money, etc.

    In other words, the hypothesis reveals itself to be ridiculous just by explaining it.

    But let's look at the evidence. According to the hypothesis, by comparing the high-tax big-government Keynesian era (1945-1980) to the low-tax small-government Friedmanian era (1980-present), one should expect higher productivity and economic growth levels during the Friedmanian era. This is dead wrong. GDP growth was much higher during the Keynesian era (3.6% vs 2.7%); productivity growth was higher too.

    Of course, economics is the anti-evidence agenda-driven science. So no amount of evidence can put paid to a failed hypothesis. No amount of evidence can convince a market fundie economist they are wrong. They are not in it to be right or wrong. They are in it to create a plutocracy. (Sociological bias.)

    The real reason why right-wing economists promote tax cuts? The top 20% makes over 50% of all income and pays over 50% of all income taxes (personal, business and investment.) So tax cuts simply benefit the rich and promote plutocracy.

    It's also BS that business or employment tax cuts create jobs. Business create the absolute minimum number of jobs necessary because they are a cost. The idea businesses will take their tax-cut profits and hire unnecessary personal is ridiculous.

    The reason the high-tax big-government Keynesian era worked phenomenally well? Proper distribution of income, that allowed all groups to benefit from economic growth. This created strong demand for goods and services. (Worked too well: made the economy sensitive to inflation and price shocks.)

    Now the economy is in the toilet because demand is depressed. This is because during the Friedmanian era, only the top 20% benefited from GDP growth. This poor allocation of financial resources led to declining GDP and productivity growth as well as skyrocketing debt and inequality.