High Tax Rates Hurt the Economy

First I will address his, then introduce my own. In terms of the setting of this debate, I think it should be applied to every country, not just the USA, because every country faces the trade off of high and low taxation. Pro 1. Reduced reward means less productivityThis argument presupposes that earning less money reduces reward. Money itself, however, has no intrinsic value. The only value of money is in the denomination. Therefore, it is not money that gives people utility, but the standard of living associated with that money. Government expenditure, the quality of the environment, the crime rate, interest rates (which affect investment) and numerous other factors can alter my standard of living. As I will shortly prove, these other means are more effective at improving standard of living than private expenditure, and they are all improved through taxation. Exactly the same counter-argument is true for capital taxes. My opponent cites Edward Prescott's study as evidence for this. Virtually every other economist agrees that the major source of US growth recently has not been low taxes but high debt [4]. The periods examined by Prescott are very selective. The biggest growth the US ever had was during the 1950s-60s, when tax rates for the top tax bracket were about 91%, the biggest slump was during the 1920s when the rate was only about 25% [5]. If he had looked at these periods relative to other countries, he would have seen quite a different picture. The first period he chose, 1970–74, was when the US was mounting debt before the crash of the early 80s. The second was the early years of the Clinton administration, years marred by "the massive deficit and the problem of government spending" [6]. Europe had much less debt during these periods and that's why this study is misleading. That tax rates corresponded to productivity during these periods was the product of bad decision making, not effective economics. He then cites the "numerous studies" that show a link between tax rates and investment. "Investment" in economics has a very precise meaning. It generally means money given by the private sector (including households) to companies from their savings. It does not include government spending. When I give $10 to a company and the government gives $10 to a company, the effect on the economy is the same but the effect on investment is very different. When tax rates increase, investment might go down, but government spending goes up, so there is a neutral effect on the economy. Finally he makes precisely the same claim, again citing his "numerous studies," this time for tax rates and growth. The problem is that almost all of the studies found only a small, modest correlation, and that was almost entirely due to the same dataset that Prescott studied. The other datasets often did not fit with their conclusions at all, and even contradicted them. They also only measure the cost of taking the money into the hands of the government, not the benefit of the reallocation of wealth. Engen and Skinner, for example, admitted in their conclusion "beneficial government expenditures may yield a net improvement in the . .. economy," before going on to prove government spending has empirically raised growth in some cases - their conclusion was the taxation itself had no effect on the economy, but rather what mattered was how it was spent. Pro 2. Incentive for tax evasionActivities that fall under the radar of taxation are called the "shadow economy. " Uruguay has a lowish personal income tax rate of 0–25% [1], and their shadow economy is 51% of their GNP [2]. The USA's rate is higher, at 0-35% plus up to 10.55% state taxes [1], yet their shadow economy is only 8% of their GNP [2]. Lower taxes, therefore, does not mean less tax evasion. What really causes tax evasion is how much people trust their government, as has been shown empirically on numerous occasions [3]. What better way to lose the faith of your citizens than to be underfunded and unable to carry out the big projects they demand? To build trust you need a strong police force, you need a strong education system, you need strong social security, not to mention a strong healthcare service. The money for all these things needs to come from somewhere. Pro 3. EmigrationLook at the status quo. In the Bahamas there is no tax [1], yet not everyone emigrates to the Bahamas. People are obviously motivated to stay in certain countries by more than just the tax rate. The same thing is true of companies. The tax rate is irrelevant if the country isn't going to be profitable, and if it's profitable the company has another incentive to expand there. Now on to my points:Con 1. Govt makes better decisionsUnlike private households and the vast majority of businesses, governments are advised by a panel of experts as to what sectors of the economy merit investment. They are in the unique position of being able to have access to as much information as possible about the state of their own country, as well as a duty to provide the greatest return to everybody, not just their "shareholders" or family, possibly at the expense of others. It makes sense that this group should be allowed to direct investment to areas which will provide long-term prosperity. Good investment by government contributes more to growth than bad investment by individuals. Individuals are much more likely to get it wrong because all they look for is a monetary return. Con 2. EquityGovernment spending increases equity because much of it goes to the poor, as opposed to investment which largely goes to the wealthy. The largest impact of tax cuts is on the wealthy, particulary as my opponent appears to argue against progressive tax in particular. This is bad because it's actually a distortion - the poor often work at the expense of the wealthy. Capitalism automatically feeds wealth to leaders, even though leaders often don't work hard to get to the top. Inequality, social injustice, and poverty are the results. This was exactly what happened in Brazil [7]. In China the government recently admitted taxes were one of the reasons why so many Chinese live in poverty, and adjusted its tax rates as a result [8]. It happened twice in the USA - once in the 1890s and once between the 1970s and late 2000s (under the influence of the supply-side model). In both cases, real wages fell sharply. Con 3. Govt more efficientWhile all governments have their fair share of bureaucrats, so do the big firms. The difference is that they don't need to advertise, pay corporate salaries, keep profits rolling, plus they achieve the greatest possible economies of scale. For all these reasons governments are likely to not only do the right job, but do it better than corporates. That is, if corporates do it at all (*cough* Bolivia's water supply *cough*). Con 4. Govt investments more likely to bolster external sources of standard of livingThe title says it all. The government is more likely to keep the streets safe, build free parks, look after nature reserves, and so on, than private firms, because these activities do not generate income. These improve the quality of people's lives in other ways and can have massive positive benefits to productivity. The moot falls. Sources1. . http://en.wikipedia.org...2. . http://aysps.gsu.edu..., pg 213. . http://www.bsos.umd.edu...4. . http://www.thenewfederalist.eu...5. . http://www.businessinsider.com...6. . http://en.wikipedia.org...7. . http://www.infosurhoy.com...8. . http://www.biznewschina.com...