Tuesday, April 24, 2007

The Opportunity Cost of Going Flat

This week on EconTalk Russ Roberts interviewed Alvin Rabushka. author of The Flat Tax. I haven't heard the whole podcast (having misplaced my earphones) but one virtue is worth emphasizing: the elimination of jobs.

Even if the bureaucratic process allows all those thousands to keep their job at the IRS despite many of them being useless, the economy will still see legions of tax preparers, software makers and lawyers go out of business, or at least that section of the company. And entire industry would be rendered obsolete overnight! The savings to the taxpayer would be immense, even if everyone ends up paying the same amount.

"But David," you might say, "aren't jobs good?" It depends on what they add to the economy. Digging wholes only to fill them up is a job but it adds nothing. Making buggy whips in a world of cars doesn't do much either--nothing eliminates jobs like technology. If we can get the same thing (an adequately funded government) for less, then why wouldn't we want it? The saved resources (time and money) would allow us to do so many things, making society even richer.

Supporters of our current tax system will note that we don't get the exact same thing with the flat tax and that's true. (We don't get the exact same thing swapping buggies for cars either, but very few stick to traditional horsepower; just because it's not strictly better doesn't mean we shouldn't move.) Some people will pay more and some will pay less. But the point here is that everyone will save a lot on preparation.

1 comment:

Anonymous said...

Nothing creates jobs like technology either. Which requires more workers (thus jobs) to make, a horse buggy or a car? I wouldn't have my job if it weren't for technology.

While there is redundancies and problems with government, I don't think we can shrink it much. Even if it's extremely efficient, it is going to need to grow. Because nothing creates problems like technology as well.

More people means more government to protect and serve them. More people means more companies and a greater need to protect people from those companies (things like pollution, fraud, exploitation, embezzlement). Better technology means new kinds of crime that the law and law enforcement has to adapt to and defend against.

All that takes money. If the flat tax provides that and makes sure the tax cheats are stopped, then I'll think about supporting it.