DANGEROUS DELUSIONS

May 1, 2008

Have you ever wondered why so many people see higher taxes and more government as the solution to every problem, despite the empirical evidence that more government reduces economic efficiency and growth and diminishes our liberties?  The arguments from big government advocates are usually based on a combination of economic and historical ignorance, including an inability to think beyond Stage 1, envy and just plain delusional thinking, says Richard W. Rahn, a chairman of the Institute for Global Economic Growth.

For instance, most countries tax and spend at a level higher than that which would maximize their economic growth and social welfare.  However:

  • Financial capital is the "seed corn" of modern economies and when it is taxed there are fewer funds available to create new jobs and invest in new productivity, including life enhancing and lifesaving innovations.
  • When labor is taxed at high rates, it discourages people from working (at least in the legal economy) and increases the cost of hiring by employers, which reduces their demand for workers.

Also, most government programs do not live up to their billing in that they cost far more than projected and produce less than promised:

  • Recent U.S. government studies have shown that about 50 percent of all taxpayer dollars do not achieve the promised results.
  • There is no evidence that governments spending more money use it any more efficiently than those spending less, and the contrary is more often the case.

There are few examples of governments balancing their budgets or improving their fiscal situations by increasing tax rates, but there are many examples of governments balancing their budgets through spending restraints and, at times, reducing tax rates, says Rahn.

Source: Richard W. Rahn, "Dangerous Delusions," Washington Times, May 1, 2008.

 

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