Are Higher Taxes Better? Depends How You Spend Them. With Thomas Piketty | Big Think.

Are Higher Taxes Better? Depends How You Spend Them. With Thomas Piketty
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Political debates about taxes often revolve around a simple question: Should they be higher or should they be lower? Economist Thomas Piketty argues that this conversation draws the spotlight away from a much more important topic: How do you spend taxes once you've collected them? Poorer European countries like Romania and Bulgaria, which have relatively low tax rates, do not necessarily struggle because their governments don't tax enough. Likewise, Sweden and Denmark are not successful states merely because the tax rate is 50 percent of GDP or higher. What sets these nations apart are the values which inform their tax spending. Sweden and Denmark thrive because they invest so much in education, public infrastructure, and other building blocks for growth and prosperity.
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THOMAS PIKETTY:
Thomas Piketty is Professor of Economics at the Paris School of Economics and author of the landmark 2013 book Capital in the Twenty-First Century. He is the author of numerous articles published in journals such as the Quarterly Journal of Economics, the Journal of Political Economy, the American Economic Review and the Review of Economic Studies, and of a dozen books. He has done major historical and theoretical work on the interplay between economic development and the distribution of income and wealth. In particular, he is the initiator of the recent literature on the long run evolution of top income shares in national income (now available in the World Top Incomes Database). These works have led to radically question the optimistic relationship between development and inequality posited by Kuznets, and to emphasize the role of political and fiscal institutions in the historical evolution of income and wealth distribution.
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TRANSCRIPT:

Thomas Piketty: Will lower tax lead to higher growth for lower growth? You know, it really depends what's the level of tax you start from in what country and it really depends what you do with your tax revenue. In Europe, it's interesting because we have 28 different countries in the European Union with very different level of taxation. Now the countries with the lowest tax level, countries like Bulgaria or Romania, where the total tax revenue is 20 or 30 percent GDP, whereas the richest countries like Sweden or Denmark have 50 percent of GDP in tax revenue. So if it was enough to have low tax in order to be rich, then Bulgaria and Romania would be richer than Sweden and Denmark and apparently this is not working this way. Probably because what Sweden and Denmark do with their high tax revenue is to invest them in education, in public infrastructure. So if you do useful things with your tax revenue, in fact it can be very good for growth and you need public infrastructure; you need public investment in education in order to grow. Now of course, if you don't to do all these good things with your tax revenue, then higher taxes can certainly be bad for growth. So it all depends what you do with your tax.



Political debates about taxes often revolve around a simple question: Should they be higher or should they be lower? Economist Thomas Piketty argues that this conversation draws the spotlight away from a much more important topic: How do you spend taxes once you've collected them? Poorer European countries like Romania and Bulgaria, which have relatively low tax rates, do not necessarily struggle because their governments don't tax enough. Likewise, Sweden and Denmark are not successful states merely because the tax rate is 50 percent of GDP or higher. What sets these nations apart are the values which inform their tax spending. Sweden and Denmark thrive because they invest so much in education, public infrastructure, and other building blocks for growth and prosperity.

[Sebanoe]

I have always said Scandinavian countries act as a microcosm for the possibilities of a proper functioning democratic country. Basically the best countries practice this Greek proverb. A society grows great when old men plant trees whose shade they know they shall never sit in. The closer they are to it the greater their society is.

[PhilipZeplinDK]

It's funny / interesting, how the comment section is essentially split into two groups:

Group A, is saying that this is obvious. Taxes aren't necessarily bad, as long as they are used well, and that this is a "duh" kind of thing, that everybody realizes (hence this video is not necessary).
Group B, however, is saying that all taxation is bad, no matter how it is used, in straight contradiction to everyone who says "everybody realizes taxes aren't necessarily bad".

[devwreck]

Here's some big thinking for you: The problem is YOU don't spend your tax dollars. Those in charge of government spend your tax dollars however they want, and if people haven't figured it out by now, all governments are completely owned and operated by special interests. These special interests (banks, corporations, big pharma, big agribusiness, military-industrial complex) convince you that it's your "duty" to pay taxes through the mainstream media and government communication outlets they own, when in reality, no one has the right to take from you or spend the money or products of your labor except you. Taxation is theft, no matter how you look at it, even if it's being spent on something considered "good" by societal standards. So by accepting higher taxes, or any taxes at all, you're consenting to the theft of the products of your labor for special interests to spend on making themselves richer while they steal your natural rights and what little wealth you have left. It's all about power and greed.

[Derner]

Strange comparing for Romania/Bulgaria vs Sweden/Denmark. First group are very newcomers to the capitalist world and lowed their taxes in recent decades. For the majority of post soviet countries taxation is the biggest source of corruption.

[LeGioNoFZioN]

for an economist to compare two sets of countries that are so mismatched seems strange.  Romania and Bulgaria are relative newcomers to free markets being former soviet satellites.  It would make more sense making the comparison between western european nations with highest and lowest relative taxes.

[jccusell]

Piketty omitted the fact that Bulgaria has a debt to GDP of 18% where as Sweden;s debt to GDP is 40% and Denmark's 45%. He probably forgot...

[MaskofPoesy]

Come on "Big" Think, 88 seconds for something essential and eternal as tax really?

[neonshoji]

What next, a video on how fire can be good or bad depending how it's used?

[chivenyc]

Taxation of private property is nothing but theft. 

Some guy with an automatic weapon shows up at your home, and wants your money to give to someone else while taking a cut for himself.  Then you find out it's an IRS tax enforcer.  If you resist, he still takes your money, takes your home, puts you in jail, and calls it "social justice".

I wouldn't mind giving my money to the government, if it was in the form of a loan.  Well, I could just buy bonds, but with FED's monopoly on interest rates, and keeping them artificially low, what's the point.

You want to benefit low and middle class?  Let them keep what they earn.  All of it.  You can start taxing people making $100k+.  Put the government on diet.  No more bailouts, subsidies, grants for special interest, dumb investment (solyndra, and hundrends of others), no more building of statues of camels in Pakistan, no more wars, no more foreign welfare, no more corporate exemptions from laws, regulations, and taxes, no more TSA agents stealing our belongings. Done.

[prole]

Why so many downvotes for a very reasonable argument? Flustered libertarians?

[lohphat]

The issue isn't "high or low" it's equitable taxation.  In the US the brunt of taxation is borne on the workers while corporate loopholes allow large profitable companies to pay a much lower percentage.  They're getting a free ride while US infrastructure crumbles due to lack of revenues.

[BenRangel]

Determining the best tax level for a country is quite a pragmatic thing. Depends somewhat on the state of your business sector, and previous taxation history.
For instance: If a country risk scaring off some big businesses abroad, lower taxes.
But if the country has a history of high taxes and those types of businesses have already left, lowering taxes a little will not lure them back. So the country is better off keeping the tax level rather than cutting down on important goverment programs.

[schumanhuman]

A far better question than how  much  is,   WHAT should we tax.

Today we tax just about every activity-consumption, labour and capital.  Sadly taxing these 'events' means we are likely to get less of each of them, which is what economists call dead weight losses. But putting the taxation onto economic rents carries no dead weight loss, the most important of these rents is land value which has been measured at about 1/3 of GDP,   this tax logically does not reduce the amount of land, indeed any rate levied at or below 100% of the rental value actually promote economic activity by pushing land speculators into using their land to it's best use, ending the western disease of 18 year cycle real estate crashes . Further it is completely justifiable for the community to socialize this value because  land values are exogenously created by the community not the land holder.
 The other best taxes would be pigouvian ones upon pollution, copyright and taxes on oil and other natural resources. With these in place we can probably scrap the other taxes and not punish people for working, consuming or creating productive capital.

[mrbyrd]

looking solely at %GDP tax revenue to determine wealth of a country is not a good practice. what about natural abundance of resources, technological patents, number of corporations, grade school test scores...

you can't make any material claim about an economy by looking at only one factor

[spencerwenzel]

There is a flaw in his argument. He assumes that taxes is the only factor in a countries wealth. I think natural resources influence a countries wealth greater than tax rates

[bbxhrhj]

While he's not incorrect, this is not exactly a revelation... "oh, it matters how you spend the tax money? Infrastructure is a necessity for prosperity? woooowww"

[sferrin]

High taxes are better - unless you're the one who has to pay them.  It's always easy spending other people's money.

[miroslavhandzhiev]

Bulgaria has 10% income tax + 17% for pension, unemployment, health which makes about 27 ... but we have 20% VAT, 60% taxes on petrol so overall it is over 50% on the average person and this is just few percent less than NO and Denmark ... but our politicians are just stealing those money so yeah it depends on what you do with it ..

[OmniphonProductions]

Higher tax revenue is less important than responsible spending.  Far too many in government favor tax-and-spend...or worse, spend-and-tax...economics with no focus on "living within our means"...let alone saving for the future.

[SirAmicVarze]

A longer video would've been better but his general point is correct.