While polling constantly suggests that people are happy paying higher rates of tax in exchange for more government services, practical experience suggests that they’re telling white lies and are really trying to appear more altruistic they they are. It’s the source of furious academic and public policy debate.
Now a new research paper from The Centre for Independent Studies asks if government spending programs do more harm than good. “A dollar increase in government revenue ends up costing the economy far more in real terms than the dollar that is actually paid in taxes,” claims a new paper released today called The Costs of Taxation.
“While tax revenues may be spent by government on beneficial uses, these benefits have to be weighed against the ‘deadweight losses’ (basically, the value of lost output) incurred as a result of levying the tax in the first place,” says author and ANU economist Dr Alex Robson. Robson calculates the total dead weight loss of taxation could be as high as $61 billion per year – more than the federal government spends on health.
“High personal income taxes not only reduce the ability of individuals to enjoy the fruits of their own labour and make workers worse off; they also create significant disincentives,” Robson says.
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His paper claims that every dollar raised in taxes is costing at least $1.20 in lost output. Robson argues any new government program should therefore generate benefits worth at least $1.20 for every $1 spent. He is critical of economists and politicians who claim Australia could afford to raise taxes on higher income earners without damaging growth, and points out that countries which significantly cut taxes between 1980 and 2000 enjoyed average per capita economic growth rates of nearly three times those that did not.
The timing couldn’t be better. Tax debate partisans can find the paper online here.