This was just a one off post by Matt Yglesias, lamenting the fact that there isn't a party advocating both lower and more progressive taxes, but it made me think about how taxes and inequality have similarly bad effects on the economy.
If you think of a simple club good, and assuming price discrimination isn't possible, you can see that either taxes or inequality will prevent economically productive activity: a twenty percent tax will have the same negative effect as consumers having a twenty percent greater or lesser willingness and ability to pay than average.
For example, if there's a theater that needs to take in a hundred dollars a night to stay in business, it can work if there are ten people who are each willing to spend ten bucks for a ticket. But if there's a twenty percent tax, it will only be able to take in eighty. In the same way, if half the potential customers are willing to spend twelve dollars for a ticket, but the other half can only afford to spend eight dollars for a ticket (twenty percent more and less than average), it will also only be able to take in eighty. Without price discrimination, it can only charge eight bucks a ticket or it will lose half its customers, even though the other half would be willing to pay more.
