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John Cogan on the the Negative Effects of High Taxes

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Published October 1, 2020

Contrary to popular belief, higher tax rates often do not lead to greater tax revenue. High tax rates encourage companies and high-income individuals to lobby for loopholes that help them avoid taxes. The best way to create an efficient tax system is to lower taxes and broaden the tax base.

For more information, visit the PolicyEd page here: https://www.policyed.org/policy-briefs/john-cogan-negative-effects-high-taxes/video.

This video’s audio is excerpted from an episode of the Uncommon Knowledge web series, published by the Hoover Institution.

Additional Resources:

  • Watch the Uncommon Knowledge podcast episode “Why Here? Why Now? Why Did the United States Enjoy Dramatic Improvements in the Standard of Living During the Last Century?” with John Cogan, Lee Ohanian, Terry Anderson, and George Shultz. Available here.
  • Read, “How to Cut Tax Rates and Raise Taxes,” by John Cochrane. Available here.
  • Watch “What We Learned About 70% Tax Rates 50 Years Ago,” on PolicyEd. Available here.
View Transcript

When you raise tax rates very highly, 

you create incentives for lobbyists, greater incentives for lobbyists to create loopholes to avoid those taxes. 

Daniel Patrick Moynihan once described the tax system as like a hydraulics system. 

When the rates go up, the loopholes go up, and the ability to avoid goes up. 

And so, what we found over time was that when you lower taxes and broaden the base you get a much more efficient system.