Page 239 - The Principle of Economics

THE DESIGN OF THE TAX SYSTEM
Al “Scarface” Capone, the notorious 1920s gangster and crime boss, was never convicted for his many violent crimes. Yet eventually he did go to jail—for tax eva- sion. He had neglected to heed Ben Franklin’s observation that “in this world nothing is certain, but death and taxes.”
When Franklin made this claim in 1789, the average American paid less than 5 percent of his income in taxes, and that remained true for the next hundred years. Over the course of the twentieth century, however, taxes have become ever more important in the life of the typical person. Today, all taxes taken together— including personal income taxes, corporate income taxes, payroll taxes, sales taxes, and property taxes—use up about a third of the average American’s income. In many European countries, the tax bite is even larger.
Taxes are inevitable because we as citizens expect the government to provide us with various goods and services. The previous two chapters have started to
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IN THIS CHAPTER YOU WILL . . .
Get an overview of how the U.S. government raises and spends money
Examine the efficiency costs of taxes
Learn alternative ways to judge the equity of a tax system
See why studying tax incidence is crucial for evaluating tax equity
Consider the tradeoff between efficiency and equity in the design of a tax system