What I want to focus on, however, is the economic arguments that are made to support the ideological goal of low taxes. The main argument is that taxes cause distortions that lead us away from the best allocation of our resources, and this reduces economic growth. A particular type of distortion –– that taxes reduce the reward from innovative, job creating, growth enhancing economic activity and this reduces the effort that the wealthy are willing to devote to it –– is often at the forefront of these arguments.
Taxes do cause distortions, and we ought to raise revenue in a way that minimizes distortions so long as it doesn’t undermine our desire for equity in tax burdens. There are, of course, different ideas about what is equitable, and the efficiency benefits from reducing taxes on the wealthy have been overstated by a considerable margin by tax cut advocates. But the basic idea that, for a given degree of equity, taxes should produce the smallest possible distortions to economic activity is hard to disagree with.
Is it true that increasing taxes on the wealthy will always cause a reduction in economic growth?
