I read this post at John Cochrane’s blog and attempted to comment, but commenting isn’t open to the general public. So I sent him the following email.
You posted recently on Dan Mitchell’s argument against the Value Added Tax. I was surprised you didn’t mention an earlier column by your colleague at Chicago, Don’t Fear the Invisible Tax.
I would also quibble with your political argument. Who benefits from retaining deadweight loss in order to constrain revenue? If the government is spending revenue on “public bads” instead of goods, I can imagine it being preferable to raise less revenue (even if it means having greater than Laffer-maximum tax rates). But you didn’t seem to suggest such an argument. When you ask if firing all the accountants and lawyers is worth putting up with a larger welfare state I imagine you are simply talking in terms of dollar expenditures. But that neglects the truly deadweight (as in not transfers to accountants & lawyers) loss from distortionary taxation.
The economist Robert Frank advocates a progressive consumption tax. Lacking any commitment to egalitarianism, I don’t care at all for progressivity, but I hate distortionary taxation. Consumption taxes strike me as strictly dominating income taxes. Other economists I’ve read like Scott Sumner and Steve Landsburg express similar views. I’ve yet to read any economists make the opposite case (though I’ve heard Tobin advocated a tax carrying his name to reduce financial volatility). Have you expressed a view on consumption vs income/investment taxation? If economists expressed a consensus opinion as a discipline that might nudge policy in a better direction.
In case you read this, thanks for taking the time.