Just curious—what kind of tax system makes the most sense from an economic perspective? Which types of taxes are better for the economy, and which ones cause the most issues?
I know there’s more to taxes than just the economy, but let’s focus on the economic side here. Do you think it’s better to combine multiple types of taxes, or keep things simple? Also, are there any systems that sound good in theory but haven’t really worked in practice? Would love to hear your thoughts.
If you’re looking for more on this, there’s a ton of research around the idea of optimal taxation. For example, there’s this paper by Mankiw and this one by Diamond and Saez. They explore some big theories, though there’s not always agreement—especially on taxing capital income.
Bao said:
@Shan
Where do these papers explain their main findings? Are they super long reads?
The key points are summarized in the abstracts. You’ll find them on the second page of both papers.
@Shan
Saez’s work had some pushback, though. I don’t remember the details, but it’s worth digging into.
Honestly, there’s no single ‘best’ tax system—it depends on what you’re trying to achieve. Are you measuring it by GDP growth, income equality, or something else?
You’d need to be clear about your goals to get a useful answer.
@Hartley
This is spot on. It also depends on whether we’re talking about federal, state, or city taxes—like in the U.S., you can avoid state taxes by moving, but not federal ones.
Progressive taxes generally work better for a healthy economy. People on lower incomes tend to spend more on goods, which helps businesses thrive. But yeah, it’s complicated!
@Hartley
I usually think median income per capita is a good ‘North Star’ to measure things like this.
It really depends on what you define as ‘best’. Economists can give you models, but the ‘right’ choice depends on what values you’re prioritizing.
For a quick take, economists often highlight land value taxes as a good option. They’re efficient, and they don’t distort economic behavior as much as other taxes.
The Land Value Tax (LVT) is often seen as the least harmful tax. Milton Friedman even called it ‘the least bad tax.’ It’s simple and doesn’t discourage investment or production.
Some economists think LVT could replace other taxes entirely (a theory called Georgism). The idea is that taxing the land’s value, not the buildings on it, encourages better use of the land without adding economic deadweight loss.
From a purely theoretical perspective, a head tax (flat per-person tax) has no impact on economic behavior, so it’s the most efficient. But in practice, it’s not realistic because it’s unfair and unpopular.
Avery said:
@Ellis
Wait, why would a head tax be considered efficient if it doesn’t take income into account?
Because it doesn’t distort decisions on work, spending, or investment. But yeah, it’s wildly regressive, so it wouldn’t work in the real world.
Economics doesn’t give a single answer to ‘best.’ It just models outcomes based on what you decide is important. If you ask an economist for ‘the best tax system,’ they’ll probably ask you what you’re trying to achieve.
@Jules
Fair point. I just wanted to get an idea of what people thought was least disruptive to the economy.
Frankie said:
@Jules
Fair point. I just wanted to get an idea of what people thought was least disruptive to the economy.
Gotcha. In that case, land value taxes and simple progressive systems are usually at the top of the list.