Friday, May 6, 2011

A Little Tax Break

Great video from CFPF.  Let's chat after you watch.

Once people possess something, it's harder for them to give it up.  That goes for tax revenue and entitlements.

The key quote of this video is from Milton Friedman who said, "In the long run, government will spend whatever the tax system will raise, plus as much more as it can get away with."  The tax increase should be obvious, but what I think the "much more as it can get away with" part is potentially the deficit problem.  In other words, if the government can spend more than it steals generates in tax will.  As long as there is someone to fund the debt (the Fed, bond buyers, etc.), then it will spend.

Taxes are not always bad.  The case for taxes is when dealing with true externalities.  These are a lot rarer than people think, as most of what people call externalities are not...they are generally internalized in some fashion.

Yet increased taxes to fund an ever increasing size of government is bad, as the video explains.  The other key to take away from this video is the tax on the middle class.  Politicians know that's where the money is.  When the "rich" or corporations get taxed, they have an incentive to find ways around it.  They also have incentives to rent seek for special privileges or exemptions.  The middle class...not so much.  They are generally left holding the bag, as my earlier post and the video pointed out.

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