In the budget debates this week Paul Ryan said “If you tax something more you get less of it.”

Lovely sound byte that is completely misleading when applied in the real world.  This statement is true in world with only 3 objects: stuff, taxes on stuff, and 100% rational consumers.  The problems with this should be obvious:

1) consumers are not 100% rational, and

2) there are way more factors at work in the real world equation

All that is needed is one example: roads (as a placeholder for general ‘infrastructure’).  If we don’t tax anything to keep the costs down and because of not taxing don’t build any transportation infrastructure do we get more stuff?  Absolutely not.  We get less of it WITH less taxes.

The same is true of providing for an orderly society in which commerce can run effectively (read – $ to fund military and law enforcement).  The same is true for providing protections for the stuff itself (read fire departments and drafting and enforcement of laws against theft and vandalism).

In a complex society, zero sum game theory is still possible and a valid way of analyzing some social and governmental challenges.  But only if you include all the variables.  And that is very hard to do in the real world.

Point of fact, taxes do tend to reduce the amount of ‘stuff’ that people can purchase, but what we DO with the tax revenues can have a wide range of effects from further reducing production & consumption to offsetting the production/consumption limiting effects of the taxes to actually increasing production & consumption.

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