Yes! In a world without taxes, there will be a certain allocation of resources. Let's use tariffs - without tariffs (i.e. without the tax), a firm will choose to produce 10 cars based on the input costs. Once we introduce tariffs (a tax) and make car production more costly, the firm only makes 8 cars. The tax here created a 'distortion' as compared to the non-tax world. This distortion reduced overall created value in the economy - i.e. instead of 10 cars, we now only have 8 cars. Economists view this loss (2 cars) as an less efficient economy (we used to be able to produce 10 cars, now we produce 8 cars).
Now the reason taxes are introduced (like tariffs) is to raise revenue for the government. Suppose, we did raised a different tax, instead of tariffs, like a corporate tax. Suppose that under this different tax, we would raise the exact same amount of revenue as with tariffs, but the firm would produce 9 cars. This corporate tax is thus more efficient than tariffs, as it raises the same revenue amount, but distorts the economy less (we only lose 1 car of production).
The most efficient tax is a lump sum tax (a very theoretical tax). Under the lump sum tax, everyone pay a fixed amount. Thus, this tax has no impact on your decisions whatsoever. For example., if a firm were to pay a lump sum tax, it would not alter how many cars they'd choose to produce.
Lastly, there can be taxes that improve efficiency. This is true in cases of negative spillovers, especially with pollution. For example, carbon taxes can theoretically improve efficiency. That's because firms may produce too much and generate too much pollution (that harms others). A carbon tax then reduces output, reducing the negative effects of pollution.
Yes - in most cases. The only other case where taxes can increase efficiency is if there is a negative externality. For example, pollution. Without taxes, because the producer does not take into account the cost of pollution when they make things, we over-produce relative to the true cost. Taxes can then bring us back to the efficient outcome, where the benefits = cost (including pollution).
'“we” (via the government) decide that we should provide ourselves with certain goods and services – like education, healthcare, defense' - ah, so this is a romantic fantasy article xD
Did the government force Intel to print new paper equity and sell it to the government or did the government simply purchase existing paper off the market? If the former, it is stealing from the stockholders by dilution; if the latter is true then it is investing our tax dollars expecting an ROI which, if an honorable act will 1) potentially defray raising taxes or 2) offset increases in future rising sunk costs. Which do you contend is the purpose?
Missed the fourth and perhaps most likely way the US will deal with its debt: inflation. A tax on bond holders and savers more broadly.
On a more serious note, could you expand on what is an inefficient tax?
Yes! In a world without taxes, there will be a certain allocation of resources. Let's use tariffs - without tariffs (i.e. without the tax), a firm will choose to produce 10 cars based on the input costs. Once we introduce tariffs (a tax) and make car production more costly, the firm only makes 8 cars. The tax here created a 'distortion' as compared to the non-tax world. This distortion reduced overall created value in the economy - i.e. instead of 10 cars, we now only have 8 cars. Economists view this loss (2 cars) as an less efficient economy (we used to be able to produce 10 cars, now we produce 8 cars).
Now the reason taxes are introduced (like tariffs) is to raise revenue for the government. Suppose, we did raised a different tax, instead of tariffs, like a corporate tax. Suppose that under this different tax, we would raise the exact same amount of revenue as with tariffs, but the firm would produce 9 cars. This corporate tax is thus more efficient than tariffs, as it raises the same revenue amount, but distorts the economy less (we only lose 1 car of production).
The most efficient tax is a lump sum tax (a very theoretical tax). Under the lump sum tax, everyone pay a fixed amount. Thus, this tax has no impact on your decisions whatsoever. For example., if a firm were to pay a lump sum tax, it would not alter how many cars they'd choose to produce.
Lastly, there can be taxes that improve efficiency. This is true in cases of negative spillovers, especially with pollution. For example, carbon taxes can theoretically improve efficiency. That's because firms may produce too much and generate too much pollution (that harms others). A carbon tax then reduces output, reducing the negative effects of pollution.
So at best, tax is not inefficient, anything that's not lump sum has varying degrees of inefficiency?
Yes - in most cases. The only other case where taxes can increase efficiency is if there is a negative externality. For example, pollution. Without taxes, because the producer does not take into account the cost of pollution when they make things, we over-produce relative to the true cost. Taxes can then bring us back to the efficient outcome, where the benefits = cost (including pollution).
Oh, or like special tax on alcohol and tobacco which increases lifespans?
'“we” (via the government) decide that we should provide ourselves with certain goods and services – like education, healthcare, defense' - ah, so this is a romantic fantasy article xD
Did the government force Intel to print new paper equity and sell it to the government or did the government simply purchase existing paper off the market? If the former, it is stealing from the stockholders by dilution; if the latter is true then it is investing our tax dollars expecting an ROI which, if an honorable act will 1) potentially defray raising taxes or 2) offset increases in future rising sunk costs. Which do you contend is the purpose?