tag:blogger.com,1999:blog-4033270.post115958005463157078..comments2023-10-30T08:41:14.356-04:00Comments on Tax & Business Law Commentary: Ungrateful DeadweightsStuart Levinehttp://www.blogger.com/profile/04917401637732122101noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4033270.post-1159646350187674722006-09-30T15:59:00.000-04:002006-09-30T15:59:00.000-04:00It's not at all clear that the relationship of dea...It's not at all clear that the relationship of deadweight losses to increases in taxes is all that clear. Thus, in a CBO paper, <A HREF="http://snipurl.com/xolu" REL="nofollow"><I>Recent Literature on Taxable-Income Elasticities</I></A> pubished in December, 2004, the author states in response to Feldstein's formula for calculating deadweight loss "However, there are exceptions when a breakdown of the response can add insight into the efficiency implications. For example, suppose tax rates rise and, in response, taxable income falls, but a portion of that drop in taxable income is due to increased charitable contributions (and suppose those charities produce positive externalities). Or, suppose that a tax increase is used to finance an underprovided public good. In instances such as those, where external costs or benefits are present, assessing efficiency implications is more complex. (Note: I would have pasted the first part of the footnote, containing the Feldstein formula, however I did not think that it would translate to HTML.)<BR/><BR/>The point is that governmental expenditures may or may not be like throwing money into a black hole. Where, for instance, government spending is directed to goods that maximize the economy as a whole (the Interstate Highway System,for instance), there is less deadweight. Where the government spending is pure pork (<I>e.g.</I>, that part of the Interstate Highway System represented by the Alaskan Highway to Nowhere) Feldstein's formula would certainly tend to operate.Stuart Levinehttps://www.blogger.com/profile/04917401637732122101noreply@blogger.comtag:blogger.com,1999:blog-4033270.post-1159630031341422062006-09-30T11:27:00.000-04:002006-09-30T11:27:00.000-04:00Deadwieght losses do rise proportionally with the ...Deadwieght losses do rise proportionally with the square of the tax rate. That's because DWL is an AREA in the supply and demand diagram, which is a squared amount. That's standard economic theory you'll find in any introductory economics textbook. <BR/><BR/>But don't take my word for it:<BR/><BR/><A HREF="http://www.google.com/search?q=deadweight+loss+square+of+tax+rate" REL="nofollow">http://www.google.com/search?q=deadweight+loss+square+of+tax+rate</A><BR/><BR/>By the way, it has nothing to do with "supply side" economics -- which is not an actual sub-field within economics, and which I don't agree with anyhow. <BR/><BR/>And recognizing that DWL rises as the square of tax rates does not imply that "tax cuts" always make sense. Instead it shows that by lowering rates and broadening bases, we can make Pareto improvements in the tax system, which is good for everyone. And that's a scientific argument, not an ideological one, as you assume.Anonymousnoreply@blogger.com