Weight of Taxation Is Heavier Than Most Know

by Dave Blount | October 15, 2010 3:00 pm

The official unemployment numbers are downright comforting, compared to the actual total number of people who are unemployed. The same applies to the massive burden of taxation our moonbat rulers are inflicting on the economy. Duke University research scholar Christopher J. Conover explains[1]:

When the government taxes apples, people buy and sell fewer apples. That leaves both buyers and sellers worse off. The same thing happens when government taxes other goods, labor, or capital.

Economists call that lost economic output the “deadweight loss” of taxation. People still work, consume, and invest. They just do it less often, which leaves the nation poorer.

Everyone from President Reagan’s economic advisor Martin Feldstein to President Obama’s economic advisor Jonathan Gruber agree that this hidden cost of taxation is very real and very large.

When the federal government takes an additional dollar from taxpayers, the actual cost to society is generally $1.44. That extra 44 cents represents the deadweight loss of taxation. Every time Congress shifts another dollar from Peter to Paul, it leaves society 44 cents poorer.

The deadweight loss of taxation can be much higher, though. For example, if Congress allows income-tax rates to rise in January, as current law provides, it will cost society $1.50 for every dollar of new tax revenue. Feldstein estimates that each dollar of new income-tax revenue could cost society $2.65!

Now let’s apply this to ObamaCare:

A striking example is President Obama’s new health care law. ObamaCare includes roughly $500 billion in new taxes over the next 10 years, but also includes provisions that could result in further tax increases (such as the so-called “doc fix”). If all those additional taxes materialize (which some argue is the most likely scenario), then ObamaCare will impose an additional cost of roughly $550 billion in foregone economic output. That’s more than half of the law’s official cost. The deadweight losses may be even higher if Feldstein’s estimates are accurate.

If Congress ends up borrowing money to finance ObamaCare’s new spending or the “doc fix,” the deadweight losses could climb higher still. University of Chicago economist Harald Uhlig estimates that federal borrowing carries a much higher deadweight loss, such that every $1 of deficit spending ultimately costs society $4.40.

Obama told us again and again and again that he would only loot “the rich,” and that 95% of Americans[2] would pay less under his regime. Other people tell us that he is taxing and spending our economy to the point of collapse as part of a deliberate strategy[3] to impose authoritarian collectivism. At this point, who is it sensible to believe?

Via ToryDiary[4].

On a tip from Christina. Cross-posted at Moonbattery[5].

  1. explains: http://dailycaller.com/2010/10/13/hiding-the-cost-of-government-leads-to-bigger-government/print/
  2. 95% of Americans: http://spectator.org/archives/2008/10/16/searching-for-obamas-95-percen
  3. deliberate strategy: http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html
  4. ToryDiary: http://conservativehome.blogs.com/torydiary/2008/09/big-government.html
  5. Moonbattery: http://www.moonbattery.com/

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