Five Second: Sumner Defending Mankiw on taxes

The original post is a month old, but is highly relevant today. Sumner defends the Laffer curve and Mankiw:

I’d argue that this data is strongly supportive of the view that both the US and Europe are near to tops of the Laffer Curve for total taxation.  I did not say then, nor do I claim now, that we are precisely at the top.  But I also don’t see any reason to believe that if we raised taxes from 28% to 40% of GDP, that revenue would rise anywhere near proportionately, with no change in GDP per capita. …

For instance, in Mankiw’s data the Germans raise $13,893/person with taxes of 40.6% of GDP.  The US raises $13,097/person, with taxes of just 28.2% of GDP.  The progressive denial of the Laffer Curve is an implied claim that if we raised our tax rate to German levels, our GDP would not decline, instead we’d raise an astounding $18,856/person in tax revenue, despite the fact that no other major country with Euro-style tax rates comes close to raising that kind of revenue.  Quite a leap of faith.

[In the comments he adds:]

When comparing two large continental size economies, it makes sense to either compare totals [to] totals, or most succesful [sic] parts to most successful parts. I’m fine with either. I think Massachusetts or NYC or the SF Bay area of California could raise $18,000 per capita. I don’t think Mississippi or the border region of Texas could raise even $13,000.

Sumner defends the notion that the US tax system is more progressive than most European systems (and Mankiw):

Lindert showed that Europeans were able to raise more tax revenue only by having more regressive tax systems than the US, i.e. tax systems that relied more heavily on consumption taxes.  This is now pretty much common knowledge in the public finance area.  But many American progressives keep insisting that we can get closer to the (egalitarian) European model by making the US tax system more progressive, by having the rich pay more. 

Sumner argues that the solution these two facts suggest is to not assume the problem is that we don’t collect enough money, but that we don’t use it very well and focus on improving outcomes. He favors decentralization, changing spending priorities (less military), and do more cash grants on a county basis for what is needed in that county.

[In the comments he adds:]

For instance, I believe that our government spends about as much as the Canadian government on health care (per capita). The difference is that with that money they cover everyone, and we cover much less than 50% of the population with government health programs.

One of his commenters argues that the left does not believe everything Sumner claims they do, that they accept tax rises create increasing deadweight loss and slower-than-proportional revenue growth, but that the things they could spend the tax money on are worth those costs.