you can tax people a lot and still get a lot economic development – a second comment on mokyr
Yesterday, I discussed Joel Mokyr’s book on Britain’s industrialization and I focused on the finding that industrialization happened with a work force that was not formally educated. Today, I’ll focus on another of Mokyr’s observations – Britain was taxed a whole bunch before, during, and after industrialization.
Mokyr raises this point to argue that it wasn’t low taxes that made industrialization possible, but ideas. I wish to raise another point. Economic development can exist within a wide range of tax regimes. Mokyr makes a persuasive point that Britain wasn’t low tax in the 1700s. There were all kinds of tariffs and other forms of taxation. Mokyr does point out that taxation was indirect and that seems to be the cruz of the matter, at least in his eyes.
That seems consistent with modern political economy. Sure, at extremely high tax rates, e.g., socialist economies, you can crush economic growth. But you get a lot of growth at intermediate rates. When you add up American taxes, you get about a 54% tax rate. Same with Europe. Bottom line? There is definitely a point of too much taxation, where people just stop working, but if the taxes are indirect and hidden, people won’t notice for quite a while and they’ll just keep on working.