Taxocracy

Did you know that (as of this writing) 75 percent of the overall burden of US tariffs is on apparel? Or that of this burden, 66 percent is on women’s apparel? It’s not just because women buy more clothing than men; it’s also because the US government purposely sets tariff rates higher on women’s clothing (15.1 percent) than on men’s clothing (11.9 percent.) That’s one of many interesting nuggets you’ll find in Scott Hodge’s important new book Taxocracy.

Before I read the book, I knew a lot about the US tax system. Now I know much, much more. From 2000 to 2022, Hodge was president and CEO of the Tax Foundation, based in Washington, DC. You don’t have to read much of that foundation’s work to suspect that the professionals who work there are not big fans of taxation; you also don’t need to read much to realize that they know their subject and report it honestly. Hodge’s book is in that tradition. He considers the many ways that taxes distort our behavior and make us worse off, not just because they take our money but also because of deadweight loss—the loss of consumer and producer gains because exchange is forgone as a result of the higher prices resulting from taxes.

These are the opening two paragraphs of my recent book review “Taxocracy: What You Don’t Know About Taxes and How They Rule Your Daily Life,” Regulation, Winter 2024-25.

Another excerpt:

Consider so-called sin taxes, taxes that governments impose on items that some government officials and some voters disapprove of. Any economist can tell you that such taxes will alter people’s behavior. Hodge goes further and shows how specific sin taxes have done that. He notes, for example, that hard seltzer—carbonated water containing alcohol—is “one of the fastest-growing beverage classes in the US.” Why? Because the taxes on brewed beverages are much lower than the taxes on distilled spirits. Hard seltzers are brewed? Yes. Hodge explains that its producers have figured out how to brew sugar to create their products.

Consider Norway’s high tax on sugar, which, writes Hodge, “has created a booming candy business … in Sweden.” Or, closer to home, New York, whose high taxes on cigarettes have led to over 50 percent of cigarettes smoked in the state coming from smugglers.

Read the whole review and you’ll learn a fair amount. Better yet, read the whole book and you’ll learn even more.

I saw Scott give a talk at the Stanford Institute for Economic Policy Research a couple of years ago, and was impressed. That’s why I asked him to do an updated article on corporate income taxation for my Concise Encyclopedia of Economics.. It’s here.

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