Richard Epstein on Taxes

http://www.futureofcapitalism.com/2011/07/richard-epstein-on-taxes

Libertarian law professor Richard Epstein writes:

Republicans should treat all three forms of government financing as functional equivalents, and thus push for that deal which, subject to the caveats raised above, works the greatest cut in total expenditures. Following this reasoning, it is better to cut expenditures by $5 trillion over the next decade and raise taxes by $1 trillion over that same period, than it is to cut expenditures by only $3 trillion, without any current tax increase.

This may be a bit naive, because a few years into any of these decade-long deals, Congress will be tempted to increase spending, which will only add to pressure to eventually raise taxes to pay for it. So what looks, at the start of ten years, like a $4 trillion net spending cut may, by the end of the ten years, be a $0 net spending cut that leaves the country in a debt hole and under pressure to increase taxes at the end of the period.

Later on in the piece, Professor Epstein makes a pro-growth case for a flat tax:

First, the flat tax is far easier to administer than any progressive system, which then has to decide what dollars of income are taxable to what persons in what period. Second, a flat tax produces the better incentives for higher output, which in turn translates into greater opportunities for all, given the higher rates of economic growth. And third, the flat tax cuts against the strong incentive for the bulk of the public, who currently pays no income taxes, to push for income tax increases on "the rich" in order to gain benefits for themselves.

These gains will lead to higher levels of growth, which in all likelihood will swamp the short-term distributional gains that entrance defenders of progressivity. Yet note that the "no new taxes" pledge is indifferent on the form of taxation so long as the various changes net out on some static model

The Republicans need to keep these fundamental truths in mind. Toward that end they should accept some tax increases, but fight hard to tie those increases to a flattening of the tax rates and to the largest possible increase in spending cuts.

Link via Glenn Reynolds, who has his own brilliant suggestion for a tax increase on former government officials who cash out through the revolving door: "A 50% surtax on anything earned within five years after leaving the federal government, above whatever the federal salary was. Leave a $150K job at the White House, take a $1M job with Goldman, Sachs, pay a $425K surtax." Also, "salaries paid to former government officials aren't deductible for corporations." I'd probably want to exempt enlisted military personnel and maybe lower-ranking military officers.

by Ira Stoll  |  Jul 19, 2011 at 9:50 am Related Topics:  Education, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list