Focus Point - The Hidden Tax BiteCommentary by Pete du Pont
June 07, 2000
I'm Pete du Pont with the National Center for Policy Analysis. Here's some more interesting news about taxes.
We've long known federal taxes have negative consequences. For example, for every dollar in taxes raised, there's an efficiency loss of 2.5 percent.
But a new study by Economist Martin Feldstein shows how high tax rates spark more tax -- the term for legally avoiding paying taxes. It includes things like taking health benefits instead of salary, taking more leisure time and other ways -- simply put -- of being less productive. Your tax bite goes down, but so does your productivity. Multiply that by millions of workers, and you get some sense of the whopping hidden cost of our tax system. The study shows the efficiency loss from current income taxes is more than 30 percent. Toss in Social Security taxes, it's 50 percent. A 10 percent increase in taxes would raise revenue by 21 billion dollars, but reduce efficiency by 44 billion.
As the saying goes, there's no such thing as a free lunch, or a consequence free tax increase.
Those are my ideas, and at the NCPA we know ideas can change the world. I'm Pete du Pont. Next time, the best man.