So one of my old claims that seemed to strike the commentariat as odd or perhaps even bat boy worthy was that taxes don’t really matter that much for most aggregate outcomes.
Now there have been a rash of papers by big name economists showing that taxes don’t matter on various levels. Indeed, even Alan Meltzer is pointing to studies showing how taxes don’t matter for trend inequality.
As the nearby chart from the Roine and Waldenström study shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can’t be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%.
All of this is good, but I want to come back to what I think is an important grounding of all of this. Causal empiricism just didn’t support the notion that taxes are a big deal.
The reason is that people aren’t talking about them in a way that they would talk about something that was a big deal. Oh, they complain sure but that’s not what I mean.
So, for example if you asked someone – why didn’t you move to San Francisco or conversely, why did you move to Raleigh. Plenty of people will say, the cost of living. Indeed, it’s a meme. Everyone knows that its cheaper to live in the South and this is a reason you might consider living there when you other wise wouldn’t.
This is a strong clue that prices might be influencing folks location choices. And I mean clue. Its not definitive but it should make your ears perk up and say, “hmm is what is going on here what everyone thinks is going on.”
However, what the equivalent tax thing?
When you ask why didn’t you take that job at the bank do people say, well you know the tax bracket thing?
There is not even an easy way to describe not working because the after tax income made it not worth it. If there are no terms for it, then that’s a clue people aren’t talking about it, which in turn means that they aren’t likely doing it.
Now, maybe we could have missed something and people are talking about it but in some sort of subtle way or in a way where they are confusing causes. Sure, I think those things are real possibilities. However, then someone should be able to find those phrases or terms. To my knowledge no one has.
On the other hand.
And, this is also very important.
There are a ton of phrases and terms for not working because of the welfare state: “Put in my time”; “Hanging in there ‘til 63”; “Mooching off the system”; “Welfare queens”; “Mailbox money” etc.
This is a thing that people talk about. That is a clue that it probably exists or at least that they mean to be talking about something. What that is, we would want to check and be sure.