Sunday, April 13, 2008

Left in The Dust on Taxes - Obama's Policies are just bad for the taxpayer

Liberal, promise the moon, policies of Obama is bad for the tax payer.

Here are some thoughts on entitlements from Greg Mankiw:

'Those on the political left want to raise taxes to fund all those promises. Some want to go even further by expanding entitlements, such as providing taxpayer-financed national health insurance for all Americans. That is a feasible choice, as many European nations demonstrate, but it is not advisable. As we economics professors never tire of explaining, market economies allocate resources efficiently (with a few exceptions, which I will return to in a moment). Taxes distort incentives and debase market outcomes. In technical terms, they cause "deadweight losses." In less formal terms, taxes shrink the size of the economic pie, leaving most people with a smaller serving of prosperity.'

'Yet the supply-siders are right about one thing: Because higher tax rates reduce the size of the tax base, raising taxes generates less revenue than the "static" revenue estimates assumed in Washington would suggest.'

'According to research by Nobel laureate Edward Prescott and by economists Steven Davis and Magnus Henrekson, the high tax rates in Europe have reduced work effort and distorted the industrial mix. The Davis-Henrekson study reports that a tax increase of 12.8 percentage points (a change of one standard deviation) reduces work for an average adult by 122 hours per year. It also reduces the employment-population ratio by 4.9 percentage points and increases underground economy by 3.8% of GDP.'

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