The Agenda

My Latest Column: We’re Out of Win-Wins on Taxes

My latest column for The Daily touches on the future of fiscal policy. The sobering conclusion is that the mix of tax and entitlement reforms we need to address looming budget shortfalls will create losers.

If the right-of-center vision is realized, inefficient incumbent medical providers will find themselves displaced and squeezed by innovative new competitors, which combine technology and labor that will erode the labor market position of physicians and other workers currently protected by licensing restrictions. More broadly, the terms of public employment will have to change at all levels to foster a more resilient, adaptable public sector designed to achieve significant productivity gains. This isn’t going to shock conservatives. But physicians and unionized public workers are influential and effective policy demanders. Some will benefit from reform, but not necessarily the median worker in the relevant subsidized or protected occupation. This will translate into intense political resistance.  And even if right-of-center reform efforts fare pretty well and not spectacularly well, there will be upward pressure on taxes

If the left-of-center vision is realized, in which the federal government offers a wider range of services without subjecting service providers to reforms that would dramatically alter the terms of public employment, it will be hard to avoid a significant increase in the tax take. There is an emerging consensus among wonks that we should rely more heavily on broad-based consumption taxes. This is preferable to increases in steeply progressive income taxes, as broad-based consumption taxes are more conducive to growth. But this policy will obviously put pressure on disposable income.  

It’s a modest point, to be sure.

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