Static Or Dynamic Tax Consequences
In Just a Thought, February 20th, 2009
Doesn’t it seem common sense that if you impose a heavy tax on something, or reduce the tax on something that the additional cost or savings will impact behavior?
For example, if the government chose to impose an additional 50 cents a gallon federal sales tax on gasoline, would you drive more or less?
Or, if the government chose to remove all federal income taxes from your pay, would that reduction influence your spending?
Common sense would dictate “yes” to both questions. That is the dynamic effect of taxes to change behavior.
Liberals prefer to project a static model of behavioral change when discussing tax policy. They project higher revenue from tax increases than if they factored in the behavioral changes that result. And, in the same way they always underestimate the revenue increases that accrue when tax reductions stimulate economic activity.
Both Kennedy and Reagan, when wanting to generate more revenue for the federal government and stimulate the economy, chose to cut tax?
