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Is there a situation wherein policy makers would advocate for a tax increase? Would...

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barbiedot | Student, Undergraduate | (Level 1) Valedictorian

Posted October 16, 2013 at 4:36 PM via web

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Is there a situation wherein policy makers would advocate for a tax increase? Would that be popular from an economic perspective? From a political perspective?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 16, 2013 at 5:06 PM (Answer #1)

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There are many situations in which it is possible to imagine a politician advocating for a tax increase.  The proposals may be popular or unpopular with different groups.  The specific nature of the popularity of the proposal would vary with the situation.  Let us look at two situations in order to see how this is so.

Some politicians might advocate for a higher marginal income tax rate on people with large incomes.  They might advocate for this because they think that the rich do not pay enough taxes or they may advocate for it because they are worried about something like the budget deficit.  These proposals are likely to be popular with liberals and unpopular with conservatives, politically speaking.  Economically, the proposals are likely to be unpopular since economists generally dislike higher taxes.  However, if there is a real problem with the budget deficit, economists might support the idea of tax hikes.

A second situation is the situation of a “sin tax.”  A politician might propose an increase in the tax on alcohol or on gambling.  This may be done for economic reasons (to increase government revenues) and/or it may be done for social reasons (to reduce the incidence of alcohol use or gambling).  This is likely to be more popular politically than an income tax increase.  More conservatives will be likely to support taxes on activities of which they disapprove.  Economically, responses are less predictable.  Economists generally do not like taxes that are targeted at specific activities because they tend to “distort” economic incentives.  However, economists might agree that it is important to increase government revenues. 

Thus, there are definitely times when politicians would advocate increases in one tax or another.  These proposals will meet with different receptions among different segments of the population.

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