How Good was Adam Smith? 4 Tax Maxims from 250 Years Ago that are Still Fresh - EP239

Economics Explored

This episode delves into Adam Smith’s four maxims of taxation and examines their relevance in today's economic environment. Host Gene Tunny explores the balance between efficiency and equity, discussing historical perspectives and contemporary debates, such as the proposed billionaire tax.

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What’s covered in EP239

• Introduction. (0:00)
• Important taxation principles. (5:33)
• Taxation principles and maxims from Adam Smith's "The Wealth of Nations". (13:19)
• Wealth inequality and proposed taxes on billionaires. (20:30)
• A classically liberal perspective from Simon Cowan. (28:33)
• Taxation principles, including horizontal and vertical equity, convenience, and efficiency. (33:29)
• Taxation and its impact on economic activity. (41:19)
• Adverse impacts of high taxes: example from Australia's tobacco industry. (47:54)
• Wrap up of taxation principles from Adam Smith's "Wealth of Nations." (54:04)

Takeaways

1. Adam Smith’s maxims of taxation remain highly relevant, advocating for efficiency, equity, certainty, and convenience in tax systems.
2. Contemporary tax debates often reflect a trade-off between efficiency (minimizing economic distortions) and equity (ensuring fairness across different income groups and treating similar people in the same way).
3. The episode highlights the potential adverse consequences of high taxation, such as reduced economic growth and black markets and organized crime.
4. Discussions on billionaire taxes illustrate ongoing disagreements about how to design tax systems that balance economic incentives and equity.
5. The taxation principles discussed are essential for understanding governmental approaches to raising revenue while minimizing negative economic impacts.

Links relevant to the conversation

Recent episode with Dan Mitchell on US debt:

https://economicsexplored.com/2024/04/17/is-uncle-sam-running-a-ponzi-scheme-with-the-national-debt-w-dr-dan-mitchell-ep235/

Episode featuring Simon Cowan on tax:

https://economicsexplored.com/2024/02/23/the-tax-reform-debate-cutting-through-the-spin-w-simon-cowan-cis-ep228/

Episode with Miranda Stewart on Billionaire and inheritance taxes:

https://economicsexplored.com/2021/11/06/ep112-taxing-the-rich-billionaire-and-inheritance-taxes/

Episode with Steve Rosenthal on Tax rules benefiting tech titans and hedge fund managers:

https://economicsexplored.com/2021/11/22/ep114-tax-rules-benefiting-tech-titans-and-hedge-fund-managers/

Adam Smith’s The Wealth of Nations: Books IV-V:

https://www.amazon.com.au/Wealth-Nations-Books-IV-V/dp/0140436154

One of Dan Mitchell’s posts at International Liberty on the adverse impact of taxation on economic growth:

https://danieljmitchell.wordpress.com/2018/03/10/new-imf-study-shows-u-s-would-benefit-from-lower-tax-rates-and-less-government-spending/

Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au.

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.