Taxes, Toothaches, and Bums

Let’s start with this article in the New York Times, which makes the point that many people pay little or no income tax. The income tax burden is born by a relative few.

But what happens when the majority pays little or no income tax? An economist considers the question and comes to some grim conclusions. Will the US descend to the depths that Britain did? Will things really get so bad because the majority of voters support higher taxes that they won’t have to pay?

Perhaps, but perhaps not. Such analysis overlooks tax incidence. As Professor Mankiw frequently points out, taxes on producers end up being paid by consumers. The “rich” are society’s big producers, and taxing them excessively will result in everyone paying.

What’s not often said is that the “payment” is not always in kind. Here’s an example: what if my dentist realized that, after taxes, he would make almost as much money working a four day week and playing golf on Fridays? Working one less day means he could see fewer patients, so the first impact would be that it would take longer to get an appointment. The consumer pays by having to wait, which is quite unpleasant if you have a toothache.

This is just one example. Taxing the rich will, in a thousand little way, cost ordinary people more in money, time, and inconvenience. The Brits put up with it; Americans are a little more feisty and willing to “throw the bums out”.

After we elect them, of course.