Sunday, January 23, 2011

If the highest marginal tax were 91% would central government reduce to 17.5% of GDP?

Don Boudreqaux notices a relationship though refrains from cause and effect.  High marginal rates in 1963 accompanied low spending rates.  Low marginal rates in 2009 seem associated with something like 30% of GDP spending by Congress.

We could defeat that problem with philosophy, or we coul look and see if their is a connection between high taxes and low spending. I can see why philosophy might be preferable to analysis.

What if we choose philosophy and fail at it, then  we may get low taxes and high spending.  That makes Hayak's theories useless, they get us nowhere but the philosophy club.

The most likely cause of the relationship, by the way, is roundaboutness. Wealthy seem to think they can get additional services under the low tax, but they end up paying eventually.

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