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Changing How I Think About Taxes

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December 03, 2014 – Comments (2)

I was reading a book review of The Wealth of States, which covers the topic of taxes at the state level. I was rather surprised, because it partially changed my belief on taxes.

I have always thought that taxing consumption is a more fair way to raise government revenue than taxing labor. It seems, however, that income taxes affect economic growth less than I imagined. Moreover, it discourages saving and investment.

Higher sales tax rates correlate with slower economic growth, at least at the state level.

Which is preferable? In the end, there seems to be little to choose between the two types of taxes. Since income = consumption + savings, you will end up taxing the same thing. There is one principle, however, that has not changed: higher overall taxes at the state level results in slower economic growth. Reducing taxes will make people wealthier.

2 Comments – Post Your Own

#1) On December 03, 2014 at 3:39 PM, Mathman6577 (< 20) wrote:

Connecticut has some of the highest taxes (income, sales, property, estate, gas, energy) and fees in the nation and possesses very weak economic and job growth. After the government imposed the income tax in the early 1990's they claimed it was needed to stablize the state's finances but since then has continually raised taxes (gas, sales, and property). Budget problems have also continued to occur and the state has had to borrow large sums of money.

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#2) On December 04, 2014 at 3:01 AM, valunvesthere (20.51) wrote:

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How Reaganomics Got Us Out of the Recession byTripling the National Debt

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