Saturday, July 14, 2012

Adam Ozimek asks a questions

Is it a free market position to set tax rates to maximize revenue?

No, of course not.

I think the question of whether 70 percent top marginal rates is a free market position is a tougher question. How "top" is "top"? Why are you doing this?

A free market economist is concerned about costs that are involuntarily imposed on others. That sort of concern doesn't lead to easy, clear-cut solutions on questions of public intervention but it does provide a template for thinking about when intervention is legitimate. Given an intervention that is legitimate, you need to finance it. I could see very high top marginal tax rates being appropriate in some cases to do that. But you set taxes to achieve that goal, not to maximize revenue.

Does Paul Krugman think we should set taxes to maximize revenue? I don't know. If he does I was not aware of that before, and that would be disconcerting to me.


  1. Paul Krugman said that beyond the marginal rate threshold level of income, the sole concern is to maximise tax revenue.

    Of course, all sides in this non-debate are wrong.

    Taxes are immaterial to public policy.

    The government can and does spend as much money as it wants, as the brilliant and distinguished James K. Galbraith has argued. Taxes are not a limiting factor on a government's ability to spend.

  2. The free market position, obviously, is no taxation at all. All taxes are necessarily anti-market and thus the severity of the revenue expropriated represents a departure from the free market further and further.

    1. How are taxes anti-market? What you mean is that taxes are anti-non-intervention. Those are two different things.

      Do you ever get bothered by the fact that almost all the substance of your claims always seem to come in with your assumptions? Isn't that troubling to you at all?

  3. "Is it a free market position to set tax rates to maximize revenue?"

    That's the Laffer Assumption.

  4. Not it's not Min. Laffer has stated many times that he does NOT think the optimal or ideal tax rate is at the "Laffer point" on the Curve. I worked for him for almost a year, and spent a lot of time going through his old papers. I never once saw him even suggest that the government ought to maximize revenues.

    Perhaps he said something along those lines in a throw-away line in a public speech or something, but it is not "his position." Lots of people say that it is, but they are wrong.


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