Death by taxes

Article Highlights

  • 1 person can be expected to die within a group for each $10 million reduction in income in the area in which they live

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  • All other things being equal, mortality risk declines as income rises, and vice-versa.

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  • Every $ of tax revenue is associated with "deadweight losses.” So, if you tax something, you get less of it

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  • A $614 billion reduction in #GDP implies the premature death of 61,400 #Americans, a conservative estimate.

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  • If we ever wish to right-size #government, these are the kinds of tough questions all #taxpayers should be asking:

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A new study in the Journal of the American Medical Association has concluded that there's an extra 13 auto accident deaths attributable to Income Tax Day (i.e., generally April 15, but which falls on April 17 this year). This is a drop in the bucket compared to the actual carnage that might be reasonably attributed to paying taxes in America.

A large body of literature has demonstrated the relationship between income (typically measured using GDP) and mortality. Such studies have been done for both countries as well as smaller geographic units such as counties. While the measured relationship varies across studies, the median figure across four of the best such studies is that 1 statistical death was associated with each $7.6 million reduction in income in a geographic area (holding the population constant).  This was in 2002 dollars; based on growth in per capita GDP between then and now, the equivalent figure today would be about $10 million. There are many factors that contribute to reductions in mortality risk as income rises. People can afford to drive bigger, safer cars, for example. They can live in safer neighborhoods. Wealthier societies are more able and willing to make investments in cleaner air and water. Thus, while researchers cannot identify a particular individual who may have died because of reduced income, they are able to estimate that when all these added risks are averaged across an entire population, 1 additional person can be expected to die within that group for each $10 million reduction in income in the geographic area in which they live.  In short, all other things being equal, mortality risk declines as income rises, and vice-versa.

The latest CBO figures show that federal government revenues this year will be $2.456 trillion. As every student of economics knows, every dollar of tax revenue is associated with lost output called "deadweight losses."  If you tax something, you get less of it, whether it be labor, consumer purchases or savings. How much less depends on exactly what is taxed, but as a rough approximation, averaged across all federal taxes, such deadweight losses amount to about 25 cents for every dollar raised. Indeed, since 1992, the Office of Management and Budget (OMB) has required federal agencies doing cost-benefit analysis of any public investments that do not reduce federal spending to assign a shadow cost of 25 cents to every dollar of expenditures financed out of tax revenues to account for these very losses. Thus, in 2012, we can expect Uncle Sam's tax collections to be associated with a hidden loss of $614 billion in lost output. That is, U.S. GDP will be $614 billion smaller than it would have been without all these federal taxes.

But according to the income-mortality literature, a $614 billion reduction in GDP implies the premature death of 61,400 Americans. That's more people than are killed in highway accidents every year and more than the number of U.S. soldiers killed in Vietnam. But this is a quite conservative estimate, since it only accounts for federal tax revenues and ignores $1.171 trillion we will borrow this year to pay our bills. Assuming such borrowing ultimately is repaid with tax dollars, that would add 29,275 to the toll of Americans who died prematurely due to the lost output related to federal taxes. If we took into account another $2+ trillion related to state and local taxes, the annual death toll would rise by an additional 50,000 lives. Thus, all American taxes collectively account for approximately 140,000 premature deaths per year!

Taxes have profound consequences. Their adverse consequences on economic growth and the nation's future wealth are paralleled by adverse consequences for health. Paul Ryan's Path to Prosperity spends $5.3 trillion less over the next decade than the president's budget. Apart from the enormous economic benefits that this alternative would produce, putting the country on that path implies 132,000 fewer premature deaths. Is whatever good the president imagines he can do with his budget worth losing 132,000 lives?  If we ever wish to right-size government, these are the kinds of tough questions all taxpayers should be asking.

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