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Samizdata quote of the day “Progressive taxes do not redistribute income. They redistribute taxpayers.”
George Gilder, one of the early evangelists for “supply-side” economics, which is a fancy way of saying that he thinks people respond to incentives, considered a wild-eyed idea by some people.
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I heard this quoted on the radio some years back, and have posted in various comments since I arrived in the blogosphere.
At the time I first heard it, I was living in Chicago, and commuting to the suburbs. Chicago had an extra few cents per gallon gasoline tax, which meant that I bought all my gas, and the occasional snack or bottle of motor oil, out near work. A couple years before I moved from there, they added a trivial tax on carbonated beverages. More to prove Gilders point than to actually save the pittance, I started buying all the household’s soda near work, and as long as I was in the store, I bought other things too. The city would have collected more total tax revenue from me without the surcharges.
I know what he means and why he said it, but I would have ascribed the effect to the limited jurisdiction of tax regimes, rather than their progressive nature. It’s more of a problem for progressive taxes, because the rich are more mobile, but a regressive tax would redistribute taxpayers too.
I would also have characterised supply-side economics differently. (The following is just my opinion – I’m not an expert on the subject.) Its basis is that the wealth and prosperity of society depends on how much people produce, not on how much they buy.
Thus, welfare that gives people money to buy things without themselves generating wealth make society less prosperous, while people who operate businesses to manufacture stuff but who don’t spend the money they earn nevertheless make society more prosperous. Demand-led economics believes that those who do work for others but do not receive it in return result in unemployment, as the money that goes out of circulation in the form of savings constitutes a drop in demand that leaves many people without a market to sell to, and that the circulation of money is what is important. People giving without receiving implies people receiving without giving. (Zero-sum thinking, in my opinion.)
The relevance of supply-side economics to progressive taxes is not really about incentive, but about the multiplier effects of wealth concentration, and the lack of economic benefit in welfare/redistribution. The incentive argument is a good one too, but also applies to demand-led economics.
Surely the more important point is that taxes which purport to redistribute income between individuals actually redistribute it between the private sector and the state. Something which was mostly left out of the recent Tory-Polly debate.
Re Gilder, I thought the TLS review of a new book on the techno-utopians was grimly amusing, illustrating the usual leftist contempt for anyone who dares to sound emotive about the benefits of markets.
I think Pa Annoyed has seized the wrong end of the stick. What Gilder was saying – I could have quoted more but wanted to keep it pithy – is that high marginal rates of tax increase the costs of working vs not working, encourage people to hide their economic activity or do less of it, send money offshore, discourages saving and investment, etc. In other words, progressive tax rates have a significant impact on economic behaviour in many cases.
“I think Pa Annoyed has seized the wrong end of the stick.”
Could be. I had assumed that he was referring to the tendency of high progressive taxes to result in all the rich putting their money offshore, invest abroad, etc. rather than investing at home. So you don’t get the tax revenues anyway, and you also lose all the richer taxpayers able to drive the economy. Taxpayers are redistributed between national economies, not income between the taxpayers in a single economy. It’s a valid argument against using taxes for income redistribution, but essentially the problem is that when there are multiple tax regimes it becomes a market, and charging above the market rate for social engineering reasons results in the “customers” going elsewhere. The thinking behind redistributive taxation always assumes a monopoly position in a closed market.
I can see now how he might have meant redistributing the taxpayers between tax bands, the best producers deciding to stay in lower tax bands by not producing, but its a strain. That looks very close to redistributing income, to me, and rather than saying “redistributing taxpayers” I’d have described it as “redistributing output” or “effort” or something. Redistributing income, if it worked, would also shift taxpayers into different tax bands, and taken in isolation, the maxim doesn’t seem to me to identify the essential distinction being made.
I expect it’s clearer in context. Thanks for pointing me to the right end of the stick. 🙂
Pa Annoyed, I agree with the points you made, which made a lot of sense, by the way. (Sorry if I came across as being a tad aggressive).
Gilder’s book is well worth reading today although I am not exactly bowled over by all his religious stuff at the end. I am not sure if altruism really captures what entrepreneurship is about.
Thanks, Johnathan, and it didn’t come across as aggressive. I would much prefer people tell me I’m wrong than dance around the issue out of politeness. How can I learn, otherwise?
In this case, because I didn’t know the context, I thought it quite possible that I was wrong. I was just trying to point out where the loss of context had lost essential meaning, too. Whatever.
I’d guess based on the Amazon reviews discussing it that the religious argument is that charity is redistributive. I don’t know which way he argues, but my view is that it is perfectly possible to have supply-side charity that benefits the economy (you donate wealth multipliers like education, not subsistence) and, while scripture does commonly promote the wrong sort, it’s very easy for supply-side believers to adapt.
I believe that Gilder was speaking in particular about the United States, where each of the 50 states has a very different tax policy, and there are smaller taxing bodies within each state. I have a coworker who is exploring a possible move from Wisconsin to Arizona; his initial numbers indicate an effective 15% increase in income thru reduced personal taxes. He’s making somewhat more than the median income, I would think, but is not in the category one would call wealthy. At the time I described above, I was in the category they called “working poor” and saving a couple bucks a week on gasoline was worth a little forethought.
I was thinking of the uberwealthy who are switching their citizenship to more tax-favorable countries (including death taxes). There’s that kind o’ rich flight going on in the US.
Ireland too. Was it this blog or Instapundit that recently posted about U2 moving one of its businesses elsewhere because of lower taxation? (Unwilling to make their fair “contribution” to relieve the suffering of the poor…what they keep singing at us and hectoring world leaders about. Hypocrites.)