deadweight losses taxation
deadweight losses taxes

Review of "The Losses of Nations"

The Losses of Nations. Deadweight Politics Versus Public Rent Dividends. Fred Harrison, Editor. London: Othila Press, 1998.

reviewed by Hanno T. Beck

Let's look at the big picture for just a moment. You and I know that taxes affect behavior. Most taxes have a negative effect on the economy -- for every dollar in taxes collected, a certain amount beyond that is lost. For instance, if you tax my income, I wind up working a little less on average, because the reward of working is artificially lowered by the tax. That loss to me and to the GDP in virtue of my lowered income is in addition to the taxes taken by the public sector, so it is called a deadweight loss. That loss is nobody's gain.

The new book The Losses of Nations finds, explores, and explains, two extremely important angles of this "deadweight loss" phenomenon.

The first key is to estimate, for various nations, just how large the deadweight loss caused by taxation really is. Nicolaus Tideman and Florenz Plassman have an essay in this book that does exactly this. And you will be shocked. The losses in each of the largest economies amount to hundreds of billions of dollars every year. You simply must get hold of these statistics -- they may change the face of taxation all over the world.

The second key is what to do about this. It turns out that some taxes carry more of a deadweight loss effect than others. Aha! This means that we can just line up all plausible taxes from best to worst according to how much deadweight loss they impose, and use the best taxes most fully, while abolishing all other taxes. In this way, public sector revenue can be kept at its current level (hey, we all know government spending can and should be cut, but that's a topic for another book, okay?), and the deadweight loss to the economy can be cut way down. The result is a lot more prosperity.

The principal form of tax that carries no deadweight loss with it is the "collection of rent for the use of land and other natural opportuhnities." What's that, you ask? It involves collecting the value of monopoly, not work; collecting the value of special privilege, not human initiative. Read all about it in the book.

If you want to see what taxes will be like in the future, you must get The Losses of Nations. Nations that continue to tolerate high deadweight losses will find their economies less and less able to compete with those that are moving forward to cut those losses. Smart, scientific taxation will replace the old, political taxes and the hired economists who prostituted their field.

You can order this book from the Robert Schalkenbach Foundation website -- just choose their "what's new" link.

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