Friday, August 6, 2021

Lower Taxes Higher GDP

This is from Scott Sumner here

While rich countries often have fairly high taxes (i.e. Sweden), between two otherwise similar rich countries the one with lower taxes usually has higher per capita GDP.  (And even Sweden’s economy improved after it cut back on its extremely high tax rates during the 1990s.)  That’s one reason why America’s per capita GDP is higher than Europe’s—we have lower tax rates. In general, rich countries with lower taxes (the US, Canada, Australia, Switzerland, Ireland, Singapore, etc.) tend to be richer than those with higher taxes.

People look at Sweden and say it has a good Government but I think that they get a bad deal, the USA voters do too but less so.

Governments are very inefficient and only certain east Asian countries seem to do significantly better that the USA. We can think of ways to do things much more efficiently but not with politics. 

For example Social Security looks like a simple efficient transfer but if it did not exist only maybe 10% to 20% of old people would be in bad shape, so a program that exists to help 10% to 20% of old people, mostly from the bottom 30% of earners, pays more money out to higher earners. 

That produces a lot of dead weight loss of taxation. Plus sub-optimal living and daycare arrangements. Even in healthcare where Sweden looks better than the USA, IMHO they pay for a lot of care that does not come out positive cost benefit. They spend much more than Singapore, with little to show for it.

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