More Taxes, Please

It’s tax day and a grand old Minnesota tradition is at work – people writing to the local paper praising the virtues of taxes and, sometimes, wishing that tax rates were higher. This must be the anti-Tea Party contingent.

These tax enthusiasts make the case that taxes pay for things we enjoy like roads, police, parks, etc. They also like the “social insurance” aspect of taxes, protecting us from unemployment, disability, old age, and sickness. So, what’s wrong with the “high taxes, high service” model?

Perhaps nothing, but nothing is free. There are costs. Taxes compete with private markets for capital and consumption. Government spending helps employment, but a reduction in private spending impairs employment. There’s a lot of evidence that the net result is fewer jobs. And there’s overwhelming evidence that the average standard of living is is better with more private spending and less public spending. Yes, there is greater income inequality, but that appears inevitable in growing economies.

And the differences matter for the future. The effects compound over time. We are the beneficiaries of a relatively low public to private spending ratio. Future generations will inherit a different result which may fall far short of what it would otherwise be.

Be careful what you wish for!

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