Grüße Joachim! It's been too long, but someone on the evil X app recommended your substack, which I was only too happy to follow.
I've always appreciated your insights. As a former strong anti-tax person, I've come around to agreeing with your views.
Taxes are necessary for us to live in a society where roads are paved and schools are adequately funded to produce our future leaders. When we leave our homes, do we want to see dilapidated roads and buildings? Have we achieved anything if our neighbors, who chose to become skilled craftspeople rather than financial professionals, and therefore live paycheck to paycheck?
A successful society provides opportunity and security (financial and otherwise) broadly, not just for a few.
Thanks for putting on the Kevlar, but you'll face no argument from me.
Fascinating. Great post. I see your argument about less taxes being synonymous with cutting spending in the wrong places. But there are countries with high taxes, bloated government AND poor spending decisions. These are the basket cases where something needs to shrink, either excessive social spending, or the size of the government.
And I contend that cutting needless bureaucracy is always positive, be it to channel spending into infrastructure, or to lower taxes.
No argument with that. Greece before 2012 or Belgium and France today come to mind. But I guess many of the French readers of this Substack may disagree.
I think it is important to distinguish between taxes and revenue.
Greece has a culture of rampant tax evasion, probably stoked by its recent history of dictatorship and widespread corruption. But the point is that the underlying reality matters. You can tax all you want, but if it is not actually being collected, it is akin to not taxing at all.
the Swiss post scriptum is much appreciated. When you have a lobbycracy, tax money will be given to the well-connected, whether in the style of a traditional clientelist relationship, or catering to some particular industrial complex. And then it doesn't matter if we are talking about 25% or 60% marginal tax rates.
In a well-designed direct democracy however, voters will understand that the state provides *some* things better than the private sector. Emergency and basic health care, infrastructure, interior and exterior defense, a robust rule of law, perhaps housing, perhaps a basic safety net. The details are debatable and should be decided at the ballot box.
WWell, having lived in Switzerland for 21 years I really appreciated the sensible voting of Swiss people. But I would challenge your optimism about voters understanding that the state provides some things better than the private sector or that a well-designed direct democracy can be implemented in other countries.
I think direct democracy works so well in Switzerland because the Swiss have got hundreds of years of experience with it and will typically not engage in 'protest votes' or 'irrational votes' (though there are occasional exceptions like the Minarett-Verbot). Plus, in my experience, the average Swiss person is much better educated about politics than the average voter in the US or the UK (which is partly a result of the constant requests to vote for this or that).
If you would introduce plebiscites and referenda (referendi?) to the UK, Germany or the US, the people would almost certainly mess things up badly just because they would abuse their vote as a protest vote against the government rather than think about the issue at hand.
Yes, in general I agree. But I always try to remember that the Swiss have well-designed, qualified referenda. A pro-Brexit vote would not have happened according to Swiss rules.
Great article, here here. Let's not forget many MNC play financial shell games and offshore their profits so never pay tax, whilst still others are subsided by governments, e.g. GE in the US that booked 1bn in taxable income but never paid a dime in tax.
And where has all the tax revenue from oil gone in Anglo-Amercia? Norway, Saudi and many other countries have Sovereign Wealth funds from oil & gas proceeds for the public good; where has all that money gone in Anglo-America? All in private hands...scandalous
Last March, Carolyn Rogers, deputy governor of the Bank of Canada called the country's stagnant productivity an economic emergency, pointing the finger at government and government policy. We are seeing productivity declines across the West due to 40 years of underinvestment in infrastructure and maintenance. We have governments incapable of performing their functions because they cannot attract the necessary talent, in part because the salaries in the civil service are lousy. The answer of conservative politicians everywhere is to promise even more cuts to the civil service, ostensibly because we can't afford it!
Tax cuts have their limits. And we have reached them.
There is so much noise in these graphics that it´s embarassing people are basing they´re entire worldview on it. Development, and growth is so much multivariate that this type of analysis is kind of clueless. Of course, i am not criticising the post itself as i agree with the general argument being made here.
Sometimes I feel like we're living in ancient and declining Rome. We want everything but won't pay for it with taxes. And it just seems to be getting worse.
BTW, even when you show cases where there seems to be a relationship, I'm guessing the R-squared is very close to zero. Might have been useful to have included that number as the regression line can be deceiving.
It is not that controversial of a topic. Tax cuts are just myths because they worked in a completely different environment in the eighties, so politicians try to repeat those successes. Unfortunately success comes from analysing the situation, identifying the problems and correcting them, not just from mimicking the decisions of the old idols.
You can add the phenomenon of diminishing returns to the equation! Originally Thatcher decreased corporate tax rates from 52% to 35%. This meant that corporate income increased and the state's tax revenues decreased by a third. That can be considered a fair trade. Nowadays when we are talking about decreasing a 15% tax rate, it is a totally different matter. Decreasing state revenues by a third under these rates means a whopping 5,88% increase in corporate revenues. That is hardly a fair trade, the state sacrifices the same portion of its taxes for an ever decereasing boost of corporate revenues.
Reminds me of the Keynes quote: "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."
Working within organisations and seeing the large effect sizes of social / emotional factors, I would be quite surprised for these not to be the primary movers of eg GDP, especially given the highly egalitarian genetic design humans have. Unfortunately these go mostly ignored.
If economists would spend more time understanding psychology, behaviour, Sapolskt etc they might arrive at a model that fits the human, rather than trying to twist the human into a model that fits their ideology.
Or, to Invert Marx, economists have only changed the world. The point, however, is to interpret it.
Grüße Joachim! It's been too long, but someone on the evil X app recommended your substack, which I was only too happy to follow.
I've always appreciated your insights. As a former strong anti-tax person, I've come around to agreeing with your views.
Taxes are necessary for us to live in a society where roads are paved and schools are adequately funded to produce our future leaders. When we leave our homes, do we want to see dilapidated roads and buildings? Have we achieved anything if our neighbors, who chose to become skilled craftspeople rather than financial professionals, and therefore live paycheck to paycheck?
A successful society provides opportunity and security (financial and otherwise) broadly, not just for a few.
Thanks for putting on the Kevlar, but you'll face no argument from me.
Best, Mark
Ha, good to hear from you, Mark. And welcome to the club 😊
Excellent, as always!
Fascinating. Great post. I see your argument about less taxes being synonymous with cutting spending in the wrong places. But there are countries with high taxes, bloated government AND poor spending decisions. These are the basket cases where something needs to shrink, either excessive social spending, or the size of the government.
And I contend that cutting needless bureaucracy is always positive, be it to channel spending into infrastructure, or to lower taxes.
No argument with that. Greece before 2012 or Belgium and France today come to mind. But I guess many of the French readers of this Substack may disagree.
I think it is important to distinguish between taxes and revenue.
Greece has a culture of rampant tax evasion, probably stoked by its recent history of dictatorship and widespread corruption. But the point is that the underlying reality matters. You can tax all you want, but if it is not actually being collected, it is akin to not taxing at all.
the Swiss post scriptum is much appreciated. When you have a lobbycracy, tax money will be given to the well-connected, whether in the style of a traditional clientelist relationship, or catering to some particular industrial complex. And then it doesn't matter if we are talking about 25% or 60% marginal tax rates.
In a well-designed direct democracy however, voters will understand that the state provides *some* things better than the private sector. Emergency and basic health care, infrastructure, interior and exterior defense, a robust rule of law, perhaps housing, perhaps a basic safety net. The details are debatable and should be decided at the ballot box.
WWell, having lived in Switzerland for 21 years I really appreciated the sensible voting of Swiss people. But I would challenge your optimism about voters understanding that the state provides some things better than the private sector or that a well-designed direct democracy can be implemented in other countries.
I think direct democracy works so well in Switzerland because the Swiss have got hundreds of years of experience with it and will typically not engage in 'protest votes' or 'irrational votes' (though there are occasional exceptions like the Minarett-Verbot). Plus, in my experience, the average Swiss person is much better educated about politics than the average voter in the US or the UK (which is partly a result of the constant requests to vote for this or that).
If you would introduce plebiscites and referenda (referendi?) to the UK, Germany or the US, the people would almost certainly mess things up badly just because they would abuse their vote as a protest vote against the government rather than think about the issue at hand.
"If you would introduce plebiscites and referenda (referendi?) to the UK,"
There is the recent example of Brexit...
Yes, in general I agree. But I always try to remember that the Swiss have well-designed, qualified referenda. A pro-Brexit vote would not have happened according to Swiss rules.
Great article, here here. Let's not forget many MNC play financial shell games and offshore their profits so never pay tax, whilst still others are subsided by governments, e.g. GE in the US that booked 1bn in taxable income but never paid a dime in tax.
And where has all the tax revenue from oil gone in Anglo-Amercia? Norway, Saudi and many other countries have Sovereign Wealth funds from oil & gas proceeds for the public good; where has all that money gone in Anglo-America? All in private hands...scandalous
Excellent
Last March, Carolyn Rogers, deputy governor of the Bank of Canada called the country's stagnant productivity an economic emergency, pointing the finger at government and government policy. We are seeing productivity declines across the West due to 40 years of underinvestment in infrastructure and maintenance. We have governments incapable of performing their functions because they cannot attract the necessary talent, in part because the salaries in the civil service are lousy. The answer of conservative politicians everywhere is to promise even more cuts to the civil service, ostensibly because we can't afford it!
Tax cuts have their limits. And we have reached them.
Can you please tell that Republican in the US or the Conservatives and Reform in the UK?
I have my hands full with this guy, sorry: https://www.cbc.ca/news/politics/poilievre-public-service-1.7438154
Oh yes, I forgot about them...
There is so much noise in these graphics that it´s embarassing people are basing they´re entire worldview on it. Development, and growth is so much multivariate that this type of analysis is kind of clueless. Of course, i am not criticising the post itself as i agree with the general argument being made here.
Agreed. As I say int he post, things are much more complicated than lower taxes = higher growth.
Excellent article, Klement!
Sometimes I feel like we're living in ancient and declining Rome. We want everything but won't pay for it with taxes. And it just seems to be getting worse.
BTW, even when you show cases where there seems to be a relationship, I'm guessing the R-squared is very close to zero. Might have been useful to have included that number as the regression line can be deceiving.
Thanks again,
Jim Rich
It is not that controversial of a topic. Tax cuts are just myths because they worked in a completely different environment in the eighties, so politicians try to repeat those successes. Unfortunately success comes from analysing the situation, identifying the problems and correcting them, not just from mimicking the decisions of the old idols.
You can add the phenomenon of diminishing returns to the equation! Originally Thatcher decreased corporate tax rates from 52% to 35%. This meant that corporate income increased and the state's tax revenues decreased by a third. That can be considered a fair trade. Nowadays when we are talking about decreasing a 15% tax rate, it is a totally different matter. Decreasing state revenues by a third under these rates means a whopping 5,88% increase in corporate revenues. That is hardly a fair trade, the state sacrifices the same portion of its taxes for an ever decereasing boost of corporate revenues.
Very well put.
Reminds me of the Keynes quote: "Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist."
https://www.zurnalai.vu.lt/ekonomika/article/view/32861
Puts another angle on the question.
Corporate tax rates up = GDP growth positive
Personal tax rates up = GDP growth negative
Oh thank you for that. I think that will make it into a future post. 👍
Hi Joachim
On the topic, I wonder if the effect of social trust is worthy of consideration to GDP growth?
For example, here:
https://link.springer.com/article/10.1007/s11205-022-02894-w
Especially in light of the purported collapse in trust found in the latest Edelman Trust Barometer
https://www.edelman.com/trust/2025/trust-barometer
Working within organisations and seeing the large effect sizes of social / emotional factors, I would be quite surprised for these not to be the primary movers of eg GDP, especially given the highly egalitarian genetic design humans have. Unfortunately these go mostly ignored.
If economists would spend more time understanding psychology, behaviour, Sapolskt etc they might arrive at a model that fits the human, rather than trying to twist the human into a model that fits their ideology.
Or, to Invert Marx, economists have only changed the world. The point, however, is to interpret it.
It very much is. In fact, I have been thinking about writing a post on exactly that topic.