NCPA - National Center for Policy Analysis

REAL FEDERAL TAX BURDEN IS DOUBLE IF 'COLLATERAL DAMAGE' IS INCLUDED

July 25, 2007

Paying federal taxes does not make us better off.  We are poorer by the amount of tax we pay.  And because taxes damage the economy, impeding its growth, our pretax incomes are also smaller, say Ernest S. Christian and Gary A. Robbins, both adjunct scholars at the Heritage Foundation.

The "collateral damage" to us has been authenticated by a Nobel laureate and quantified by distinguished scholars.  They say that the ratio of lost income to tax collected is nearly one-to-one.  Thus the real federal tax burden in America is each year about double what the government tells us.

In 2007, it is an astonishing $5 trillion, broken down as follows:

  • The first $2.5 trillion is the amount of tax the government collects from us — money we originally had that the government now has and will spend.
  • The next $2.5 trillion is money that the private economy would have produced but (because of the damage done by the tax) does not.

We won't have that additional $2.5 trillion to spend, but neither will the government. It is gone.  That is why economists call the damage done to us by taxes a deadweight loss.

When measured in the vital human terms of lower incomes, fewer jobs and reduced standards of living, the high cost of taxes is simply beyond all reason compared to the low level of benefit from government spending -- once the basics have been provided and the needy cared for.

Thus the argument for a small and efficient government is not a mere matter of preference or even philosophy.  It is a matter of self-preservation in an effort to achieve the most good for the most people -- which is what government is supposed to be all about, say Christian and Robbins.

Source: Ernest S. Christian and Gary A. Robbins, "Real Federal Tax Burden Is Double If 'Collateral Damage' Is Included," Investor's Business Daily, July 24, 2007.

 

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