Tax Code Efficiency Matters

Ernie Tedeschi thinks he's disagreeing with me about taxes, but in fact I completely agree with him—the design of a tax system matters a lot for economic growth. In particular, if you have a tax code that combines relatively high marginal rates with a large number of deductions that creates a large distortion in your economy.

I'm not trying to say that taxes don't matter. I think taxes matter a lot. But they matter in specific ways for specific things, and I don't think that the overall level of taxation matters nearly as much as American political conversations tend to indicate. Sensibly designed tax codes can raise tons and tons of revenue without crippling growth the way American conservatives say they will. At the same time, I think conservatives and liberals both (but in different ways) understate the extent to which making policy through tax deductions is a big deal.