The Key Role of Prices in the Tax Debate

Conservatives and libertarians promote low taxes and smaller government, but they fail to adequately explain why.  Low tax proponents may well be thinking of their own wallets, but that is not the complete picture.

In fact, the cost of government including taxes, mandates, and regulation gets passed on to everyone in the prices of goods and services.  When prices increase, liberals complain about greedy corporations, while, to stay competitive, businesses are doing everything they can to keep prices down in the face of government related cost increases.  [It is true that “crony” corporations use government regulation to stifle competition and can justifiably be called “greedy”, but in the absence of a large interventionist government those corporations would be forced to compete as prices fall.]

If the “tax the rich” faction does get the upper hand, the burden of government as reflected in prices could go sky high.  As prices rise, units sold will go down, resulting in additional unemployment or at least slower growth.  The attempt to support the newly unemployed through additional redistribution will force prices higher, again slowing growth.  For those receiving support, decreasing buying power stimulates demand for more redistribution.  That is the vicious cycle of redistribution.

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