Lawrence Summers on Discouraging Bad Things
on Tuesday, April 15, 2014Lawrence Summers Money Quotation saying as director of the White House Economic Council that we should use taxes to discourage bad things. Lawrence Summers said:
“All taxes discourage something. Why not discourage bad things like pollution rather than good things like working?” — Lawrence Summers
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This quote from Lawrence Summers suggests that since all forms of taxation inevitably discourage or reduce some type of behavior, it is better for the tax system to disincentivize negative actions rather than positive ones.
The best interpretation is that Summers believes the structure and rates of taxes could be designed more efficiently by targeting “bad things” that society wishes to curb, such as pollution and environmental damage, rather than “good things” that are generally desirable like employment, productivity and industrious work.
According to Summers, an optimal tax code would discourage harmful externalities through levies and incentives while not unduly penalizing beneficial economic and social activities through excessive or misplaced taxation.
The implication is that governments could craft more effective policy by considering how taxes influence behavior and channeling those impacts towards discouraging what is bad rather than inadvertently hampering what is good.