Tax Policy 101
Although Tea Partiers and others decry taxes of all kinds, many levies actually make the country richer, not poorer. The way forward lies in greater reliance on these kinds of taxes. A tax on any activity not only generates revenue, but also discourages the activity. The second effect, of course, underlies the claim that taxes inhibit economic growth. That’s often true of taxes on useful activities, a primary source of current tax revenue. Job creation, for example, is discouraged by the payroll tax, and investment is discouraged by the income tax, which is also a tax on savings. But the reverse is true when we tax activities that cause harm to others. By entering a congested highway, we help to impose delays that in turn cost others thousands of dollars — even though entering those highways may save us only negligible time when compared with alternatives. In buying a heavy vehicle, we put the lives of others at risk, even though a lighter one might have served us almost as well.
