Tax Policy

Taxation is a cornerstone of economic policy that fundamentally shapes society's approach to funding government services, redistributing wealth, and incentivizing economic behaviors. How a society structures its tax system reflects deep philosophical differences about the role of government, individual rights, collective responsibilities, and economic efficiency. This issue primarily relates to the Economic Axis, though it also touches on aspects of the Authority Axis regarding government power.

Key Positions Overview

Progressive/Left Position

Those with progressive views on taxation generally support more progressive tax structures with higher rates on the wealthy, broader government services funded by tax revenue, and using the tax system as a tool to reduce economic inequality. They tend to view taxation as a crucial mechanism for creating a more equitable society and ensuring shared prosperity.

Conservative/Right Position

Those with conservative views on taxation typically advocate for lower overall tax rates, fewer brackets, minimal taxation of business and investment activity, and limiting government's role to essential functions. They tend to emphasize economic growth, individual economic freedom, and the inefficiency of government spending relative to private sector allocation.

Progressive/Left-Leaning Perspective

Key Arguments

Progressive approaches to taxation emphasize its role in creating a more equitable society and funding essential public services while ensuring those with the greatest ability to pay contribute proportionally more.

  • Progressive taxation reduces inequality: Higher tax rates on those with greater wealth and income help reduce the wealth gap and create a more equitable society. As wealth has become increasingly concentrated at the top, progressive taxation serves as a counterbalance to extreme inequality. [1] Source citation here
  • Public investments create shared prosperity: Tax revenue funds vital public investments in infrastructure, education, healthcare, and research that create opportunities for all citizens and lay the groundwork for broad-based economic growth. [2] Source citation here
  • Tax incentives can promote social goals: Targeted tax policies can encourage beneficial behaviors like clean energy development, charitable giving, and affordable housing construction while discouraging harmful activities through taxes on pollution, tobacco, etc. [3] Source citation here

Supporting Evidence

Economic Research on Tax Rates and Growth

Studies examining periods of higher top marginal tax rates in the U.S. (such as the 1950s-1970s) have found little correlation between top tax rates and economic growth. Research by economists like Emmanuel Saez and Thomas Piketty suggests that rates on top earners could be substantially higher without harming economic growth.

[4] Piketty, T., Saez, E., & Stantcheva, S. (2014). Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities. American Economic Journal: Economic Policy.

Public Investment Returns

Analysis of public investments in education, early childhood programs, infrastructure, and research demonstrates high social returns. For example, economists estimate that each dollar invested in high-quality early childhood education programs generates $7-$12 in future benefits through increased earnings, reduced crime, and lower social assistance costs.

[5] Heckman, J. J. (2006). Skill formation and the economics of investing in disadvantaged children. Science, 312(5782), 1900-1902.

Think Tank Perspective: Center for American Progress

The Center for American Progress argues that the 2017 Tax Cuts and Jobs Act primarily benefited corporations and wealthy Americans while doing little for middle and working-class families. They advocate for raising the corporate tax rate, implementing a wealth tax, and expanding tax credits for working families to create a more progressive tax system that reduces inequality.

[6] Hendricks, G., & Hanlon, S. (2021). The TCJA: 3 Years Later – Corporations, Not Workers, Are the Big Winners. Center for American Progress.

Conservative/Right-Leaning Perspective

Key Arguments

Conservative approaches to taxation focus on economic growth, individual economic freedom, and limiting government's role through lower, simpler tax structures that minimize interference in market activities.

  • Lower taxes stimulate economic growth: Reducing tax burdens on individuals and businesses leaves more resources in the private sector, encouraging investment, entrepreneurship, and job creation. This creates prosperity that benefits citizens at all income levels. [7] Source citation here
  • Simple, neutral tax codes are more efficient: Complex tax systems with numerous deductions, credits, and special provisions create compliance costs, encourage tax avoidance, and distort economic decision-making. A simpler system with lower rates and fewer preferences would be more efficient. [8] Source citation here
  • Individuals have a right to keep most of what they earn: High taxation, especially on income, infringes upon individual economic liberty. People should retain the fruits of their labor and decide for themselves how to spend, save, or donate their earnings rather than having those decisions made by government. [9] Source citation here

Supporting Evidence

Tax Competition and Economic Performance

Research examining tax policy across developed nations suggests that countries with lower corporate tax rates tend to attract more foreign investment. Studies have found that corporate tax cuts often lead to increased business investment, which can boost productivity and wage growth over time.

[10] Hassett, K. A., & Mathur, A. (2015). A spatial model of corporate tax incidence. Applied Economics, 47(13), 1350-1365.

Government Efficiency Concerns

Empirical studies of government spending efficiency suggest that as spending increases beyond core functions, each additional dollar generates diminishing returns. Public choice economists have documented how political incentives can lead to wasteful spending that benefits special interests rather than the general public.

[11] Afonso, A., & Schuknecht, L. (2019). How "big" should government be? Economics and Business Letters, 8(2), 84-95.

Think Tank Perspective: Heritage Foundation

The Heritage Foundation argues that the 2017 Tax Cuts and Jobs Act boosted economic growth, increased business investment, and led to higher wages and lower unemployment before the pandemic. They call for making the individual tax cuts permanent and further reducing business tax rates to maintain America's global competitiveness and encourage domestic investment.

[12] Burton, D., & Michel, A. (2020). A pro-growth tax policy for all Americans. Heritage Foundation.

Common Ground & Key Disagreements

Shared Values

Despite deep differences, there are some areas where progressive and conservative perspectives on taxation overlap:

  • Agreement that the tax system should be transparent and understandable
  • Recognition that extreme poverty is undesirable and some basic safety net is necessary
  • Belief that tax policy should not unduly burden economic growth and opportunity
  • Support for some basic public goods like defense, infrastructure, and rule of law

Core Disagreements

The fundamental disagreements on taxation stem from different values and assumptions:

  • Whether economic inequality itself is problematic and should be addressed through taxation
  • The appropriate scope of government services and thus the necessary level of taxation
  • The economic effects of progressive tax rates on growth, investment, and job creation
  • The moral claim of individuals vs. society to income and wealth generated within the economy

Multimedia & Further Resources

Video Perspectives

Progressive Perspective Video

This video from Robert Reich explains the progressive perspective on taxation, focusing on how tax cuts for the wealthy have contributed to inequality and how progressive taxation can support public investment.

Conservative Perspective Video

This video from PragerU presents the conservative case for lower taxation, explaining concepts like supply-side economics and discussing the relationship between tax rates and economic growth.

Further Reading

Progressive Perspective Resources

Conservative Perspective Resources

References

  1. [1] Saez, E., & Zucman, G. (2019). The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay. W.W. Norton & Company.
  2. [2] Stiglitz, J. E. (2015). Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity. W.W. Norton & Company.
  3. [3] Marron, D., & Morris, A. (2016). How Should Governments Use Revenue from Corrective Taxes? Tax Policy Center.
  4. [4] Piketty, T., Saez, E., & Stantcheva, S. (2014). Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities. American Economic Journal: Economic Policy, 6(1), 230-271.
  5. [5] Heckman, J. J. (2006). Skill formation and the economics of investing in disadvantaged children. Science, 312(5782), 1900-1902.
  6. [6] Hendricks, G., & Hanlon, S. (2021). The TCJA: 3 Years Later – Corporations, Not Workers, Are the Big Winners. Center for American Progress.
  7. [7] Feldstein, M. (2008). Effects of taxes on economic behavior. National Tax Journal, 61(1), 131-139.
  8. [8] Hall, R. E., & Rabushka, A. (2007). The Flat Tax (2nd ed.). Hoover Institution Press.
  9. [9] Nozick, R. (1974). Anarchy, State, and Utopia. Basic Books.
  10. [10] Hassett, K. A., & Mathur, A. (2015). A spatial model of corporate tax incidence. Applied Economics, 47(13), 1350-1365.
  11. [11] Afonso, A., & Schuknecht, L. (2019). How "big" should government be? Economics and Business Letters, 8(2), 84-95.
  12. [12] Burton, D., & Michel, A. (2020). A pro-growth tax policy for all Americans. Heritage Foundation.