Rick Lowe

There is often talk in the local newspapers suggesting that consumption taxes (import duties) have run their course and we must change to a "progressive" tax system like income, sales or VAT.

The theory of most commentators (see Mr. Larry Gibson's thoughts here… from his weekly column in The Tribune) is there is not enough revenue for the government from import taxes. Well you know your not so humble blogger's opinion on that by now – decrease spending! Also, I've never seen a tax that could be considered "progressive" either!!!

But since that's not an option let's look at some recent evidence about Progressive Taxation.

Matt Mitchell at Neighborhood Effects at the Mercatus Center notes that, while his regressions are relatively simple, and preliminary:

"…it appears that progressive taxation seems to be a recipe for rapid revenue growth when the economy is expanding (even tepidly). But it also seems to lead to larger budget gaps during recessions." Read his entire post here…

Professor Burton Folsom contends in a recent post at his blog that the US moved away from import taxes to the peril of the taxpayer, and the American Founding Fathers thought consumption taxes were best to keep government spending in check.

Dr. Folsom put it this way in a recent post at his blog:

"Politicians, if they raise the tax rates, will get diminished revenue because people will puff fewer cigarettes and drink less whiskey. The income tax, by contrast, produces different incentives. Politicians have long pushed for progressive income tax rates–that way, they can tax rich people with high rates and then virtually exempt a large percentage of the population. That gives politicians incentives to seek votes by taxing the rich to give programs to the much larger middle class. And since many people pay no income tax, or very little, they have not much incentive to care about how the revenue is spent. Sure, they want some of the loot, but if they don’t get any through a federal program, they don’t object strenuously because they didn’t ante up into the pot." Read more here… http://www.burtfolsom.com/?p=1172

So as long as our government does not attempt to rein spending in, we should object to changing the tax system. And we should never agree to change it unless there are Constitutional restraints on government spending and debt levels.