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Monday, October 13, 2003

Tax Reform - Difficulty in Achieving

If tax reform in the guise of a flat tax or a national sales tax would be so beneficial why don't we have it yet? There are atleast three groups against such a change. Class warfare types want to maintain as steeply progressive a tax structure as possible - it's part of their religion. Some wealthy people, who view their wealth primarily as a source of social status want to maintain the status quo. A reformed tax structure would allow more people to become wealthy. Wealth creation is not a zero-sum game but status seeking might be. Finally, most of the political class has no incentive to simplify things and allow the private sector to go into hyperdrive until the public overwhelming demands it. This last item is explained in a body of study called public choice theory.

Public choice takes the same principles that economists use to analyze people's actions in the marketplace and applies them to people's actions in collective decision making. Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest. Although most people base some of their actions on their concern for others, the dominant motive in people's actions in the marketplace—whether they are employers, employees, or consumers—is a concern for themselves. Public choice economists make the same assumption—that although people acting in the political marketplace have some concern for others, their main motive, whether they are voters, politicians, lobbyists, or bureaucrats, is self-interest. In Buchanan's words the theory "replaces... romantic and illusory... notions about the workings of governments [with]... notions that embody more skepticism."

There is a group called Americans for Tax Reform, working to achieve incremental steps toward a flat tax. Liberals think the head of ATR, Grover Norquist, is evil. If he is ultimately successful I will consider him to be a hero.

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