Epstein on Taxes

quotes political philosophy classical liberalism taxes

29 Sep 2016

Richard Epstein on taxes:

First, a sound system of taxation should not change the relative prices attached to various alternatives from what they were in a tax-free world. If A prefers X to Y in that hypothetical tax-free world, A should prefer X to Y in a world with taxation. Otherwise, the collective intervention will subsidize inefficient choices. Second, the aggregate levels of expenditure should be set to produce outcomes that give back to each citizen a package of goods and services worth more than the taxes he or she pays to create them. Over-taxation chokes off productive private labor.

There is no perfect way to reach these dual objectives. But in our imperfect world, classical liberal theory offers a good way forward. It favors flat taxes on a broad base of income, or more preferably consumption, to achieve these two ends. The flat tax reduces political discretion in determining who should be taxed, and since no one is exempt from its reach, it gives each person an incentive to search for a uniform tax rate that maximizes the net benefits from funding all public goods. That tax reduces the factional gains from forming political blocs, and it cuts down on the uncertainty that private parties face when making long-term investment decisions.

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