Art Laffer’s Nearly Right On Taxes But Not Quite
|October 27, 2013||Posted by Staff under Good Press|
Art Laffer proposed that the US should be collecting sales tax on online sales properly and then using that cash income to reduce personal income tax rates.
A lot of conservatives seem to love this idea and why not. Sales taxes tend to be regressive while income taxes tend to be progressive.
Yet different taxes have different deadweight costs. That is, the way we tax can increase or reduce the amount of economic activity we lose as a result of raising the same amount of revenue. There’s actually a spectrum there, from lowest loss to highest. That lowest loss is actually positive, repeated taxation upon real property. Or as we generally call the idea, land value taxation. This improves the efficiency with which we use land and thus increases overall wealth.
Given these variable deadweight costs we’d really rather like, on efficiency grounds, to raise as much money as we can from those with the lowest costs and the least that we have to from those with higher costs. We should make the tax system more efficient, less costly, by moving from taxation with higher deadweight costs to taxation with lower. Move from a taxation system with high deadweight costs to one with low and there will indeed be more economic activity for the same revenue raised.
Where I would criticise Laffer is that he’s being too timid. Given the analysis above I would say that we should eliminate all capital and corporate taxation entirely and move to getting as much of our taxation from land values as possible.