A Video Primer on How Taxes Reduce Economic Value and Cause Deadweight Loss

Townhall.com ^ | March 13, 2015 | Daniel J. Mitchell

[Kaslin]

While I sometimes make moral arguments against the current tax system (because it is corrupt, because it doesn’t treat people equally, because it provides unearned wealth for insiders, etc), my main arguments are based on economics.

High tax rates on workers and entrepreneurs discourage productive behavior.

Double taxation on income that is saved and investeddiscourages capital formation.

Tax preferences and other loopholes bribe people to use resources inefficiently.

These are the principles that explain why I like tax reform, why Ipromote the Laffer Curve, and why I advocate for tax competition.

Maybe it’s time, however, for a back-to-basics primer on taxes and behavior. That’s why I’m very glad that Professors Tyler Cowen and Alex Tabarrok of George Mason University (and the Marginal Revolution blog) are producing videos on various economic principles.

And I particularly like a video they produced which uses supply and demand curves to show how taxes reduce economic output.

But before we watch that video on taxes and “deadweight loss,” here’s a video on how supply and demand curves interact.

Feel free to skip this video if you feel confident in your understanding of these economic concepts (and also feel free to watch this video on the demand curve andthis video on the supply curve if you don’t have any background knowledge and need to start at the beginning).