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Uses of Economic Knowledge
| Article
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14772 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
11 / 1988 |
5,039 Words |
| Author
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C. Lowell Harriss
C. Lowell Harriss is professor emeritus of economics at
Columbia University, senior adviser of the Academy of
Political Science, and an associate of the Lincoln Institute
of Land Policy. This essay was given as a lecture at Berry
College, Mt. Berry, Georgia, in February 1987. |
Every one of us is affected by that aspect of "the public business" we know as paying for government. We cannot escape. And this "business" is large-larger than we may realize. For many of us, total taxes--federal, state, and local, hidden and apparent--exceed 40 percent of income. Even with the latest rate cuts, one need not be fabulously wealthy to shoulder tax burdens of more than half of increments to income.
Tax policy has great human importance for the way we live and improve our lives. The kinds of taxes decided upon will make a difference, not only in who pays and how much, but also in our ability to raise living standards. A knowledge of economics can help in making choices.
High tax rates do more than bring in revenue. They alter human actions, and in different ways from the ways prices do. In the market, one pays for what one gets, and in competitive markets, we generally get about as much as we pay for. But the sevices of government that a member of society receives are largely independent of the taxes he pays. He has incentive, therefore, to try to avoid a tax.
If tax rates are low, it will seldom be worthwhile to sacrifice what is essentially one's best interest to avoid tax. But purely tax considerations can be decisive when tax rates are high--and when the differences in the tax consequences of different actions are large. What is basically a less efficient alternative will sometimes seem best when taxes are taken into account, as private benefit then conflicts with the general welfare. The part of the cost of government one person saves must then be borne by others, and resources are not used as productively as they could be. Capital investment flows to take account of taxes, as well as of productivity. The underground economy flourishes.
Differences Between Taxes And Prices
Tax laws take from the individual (or prevent him from getting) what would otherwise be his without providing a specific quid pro quo. In the free market, in contrast, what a person gives up is presumably matched in worth by what he gets. To get what one wants, one must provide equal value to others. The vigorous pursuit of self-interest in a competitive market economy will generally serve the public interest. The pursuit of self-interest through the political process in government, however, often tends to conflict with the interests of others. A person who gets his own taxes reduced will benefit without loss of government
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