Otto von Bismarck more or less kicked off the modern fiscal setup for developed countries when he concluded that a 0%-socialist Germany was vulnerable to unrest that could lead to a 100%-socialist country, but going maybe 3-5% socialist—public education, a modest pension, some healthcare spending—would tamp the odds of a Worker's Revolution down to zero again while ensuring that he and his fellow Junkers still kept most of their wealth and power.

Voters' expectations have risen, societies have aged, there have been numerous effective-but-expensive advances in healthcare, the world is richer, states are more effective, and now government spending, mostly on transfers, is about 43% of GDP in OECD countries. We collectively pay lots of taxes and get lots of benefits, but tax sources aren't equivalent. There are a few large pools of income or wealth that are popular to tap into: you can tax what people earn, what they spend, the land they own/occupy (since landlord economics are after-tax, property taxes get implicitly passed through to renters), and the goods they import. You can also tax companies (or for that matter other institutions, but rulers ranging from Henry VIII to Donald Trump tend to prefer extracting lump sums from big not-for-profit institutions rather than collecting the money over time).

In general, economists want the taxes that least distort human behavior, and voters hate taxes that they can only avoid by making themselves worse off. But these are just two ways to phrase the same criterion. Ask an economist about property taxes, and they'll point out that land is a complement to everything else a given location has to offer, it doesn't get destroyed, it's very expensive to make, and thus it's a great thing to tax. Ask the median voter about property taxes and, since you're talking to the median voter, you'll be talking to someone who owns a home and is older than average. They'll tell you how annoying it is that they already paid to own their house, and now they're paying rent to the government.

The things voters hate about property taxes are the things economists love about them. You probably aren't going to sleep in a tent in protest, but you probably will downsize earlier if keeping a big house is a big financial burden.¹ That's a subsidy to population turnover: places with expensive land have a lot of economic activity, so they tend to increase the value of local labor. Giving retired people a nudge to retire somewhere cheaper means opening up more space for higher earners.²

Consumption taxes are an interesting case. They're like income taxes in that they can broaden the tax base, though with respect to income they're less progressive—the richer you are, on average, the less of your income you spend, so a consumption tax tends to hit people with a high marginal propensity to consume harder. That's fairly easy to correct with other policy choices; you can pair a consumption tax with universal basic income and get a system that still has a relatively progressive distribution of the net burden.³ One prosaic reason these taxes are unpopular is that they're so visible: when consumption is taxed, everything is expensive, and when a consumption tax is paired with an income tax, people complain that they got taxed on what they earned and taxed again on what they spent.

Of course, the rejoinder there is that if you don't spend, you aren't competing with other people for scarce goods and services, and can invest the money instead. And there's yet another set of taxes that affect that tradeoff even more strongly: corporate income taxes, and taxes on distributed corporate profits (capital gains and dividends). And meanwhile, spending on current consumption needs competes with spending on capital goods and infrastructure, not to mention R&D to develop the next generation of both.

But tilting tax incentives towards investment over consumption isn't strictly the reason to prefer lower corporate taxes. High consumption raises returns on investment, though some of those excess returns will be captured by businesses in other countries. And real rates are harder to shift than nominal ones; if we rearrange the tax code so people spend less of what they earn and save more, we'll tend to lower nominal rates (there's more demand for investment assets) and also lower inflation (less demand for goods and services). This was part of the post-financial crisis equilibrium, in the US and other places: higher earners were making more, but not spending much more, so they invested in low-risk assets. They were basically sterilizing the inflationary impact of their own raises. That gave governments room to spend, which the US didn't really take advantage of until much later with chips and renewable subsidies. The real reason to prefer lower corporate taxes is that companies operate at a scale where they have many ways to legally reduce their tax burden, as do their investors. Capital in the abstract is mobile, and that abstract capital drags the more physical kind with it; there's global competition to attract companies, and one of the cheapest ways they can reduce their tax burden is to earn their money somewhere that won't tax them much. It would be nice if they didn't play that kind of game quite so often, but the product of having high corporate taxes and moralizing about it is that it raises the tax advantage of ignoring those norms.

Value-added taxes and land taxes are the most straightforward to collect because they both have an element of self-auditing. If you're a retailer subject to VAT, you have an incentive to accurately report what you paid your suppliers so you only get taxed on the difference, which means they have a hard time hiding revenue. (It's not perfectly self-auditing; if you sell widgets for $10, I could create a supplier who sells them to you for $9.99, give you a valid invoice for that, and then disappear before I actually pay my tax. And customers could also split payments into a small markup that's paid electronically and a larger one paid in cash.) Property taxes are self-auditing in that the government can just seize your property and auction it off if you don't pay; they're already in the business of keeping unauthorized occupants out of people's homes, so the marginal cost of doing this is low.

Tax systems are never optimal, but that's its own kind of market efficiency at work. Economists are a pretty small constituency, and their preferences are still reflected in policy—in present value terms, the US government is mostly an annuity business that collects taxes from people under 65 in order to provide an inflation-adjusted annuity that's paid in a mix of cash and healthcare, and the right way to fund something like that is to have people pay into it while they're working and withdraw after they stop. (Of course, this assumes that the system will update its payout rate based on the present value of the taxes backing it.) There are places where most state and local funding is from property and sales taxes, and until fairly recently, popular but deadweight loss-inducing tariffs weren't part of the revenue producing menu. Things could be more optimal: property taxes would encourage turnover among people with unusually high or low ratios of real estate occupied to income, which would be healthy; consumption-based taxes would lead to more efficient capital allocation than income or corporate taxes. In the end, politicians have to figure out their personal exchange rate between maximizing revenue and minimizing complaints from constituents. Which actually encourages some good behavior: people are generally okay with paying taxes if they feel that they're getting their money's worth, so if you want more optimal taxation, you have to start with the thornier problem of figuring out optimal spending.

One of the ways The Diff covers taxes is writing about literal tax policy, but it turns out that platforms often have a tax-like business model:

• Retail media is a sort of platform-imposed sales tax, but its auction mechanics mean that sellers pay something close to the maximum they’re able to ($).

• If you tax unrealized gains, what are you really trying to tax?

• Vice businesses produce tax revenue and bad incentives ($).

• When you think of big platforms, think of a digital landlord trying to tax at the Laffer maximum ($).

• On the spending side, big cities have a comparative disadvantage at turning local taxes into local services ($).

• Liberty Media is a case study in how hard it is to collect corporate and capital gains taxes from someone who’s determined not to pay.

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1  In states like California, the amount of property tax paid is based on the value of the home assessed at time of purchase, with annual increases limited to 2% a year. This means, for older homeowners the financial burden is relatively immaterial, given home prices in many parts of the state were quite low 30+ years ago and have increased much more than 2% a year since then. This is a pathologically bad policy for a state whose economy is built around bringing in talent from around the country and around the world.

2  This has a positive feedback loop: the supply of generically cheap housing is pretty elastic, in that there's usually somewhere that a new house can be built if you're indifferent to where. But housing is more legally restricted and more expensive to build in higher cost of living places, so this population shift tends to make expensive places much more expensive while having a more muted impact on the cheaper places. That makes property taxes somewhat progressive, though of course they're not very progressive with respect to wealth: richer people tend to have more money in financial assets, while it's the middle class that's most overweight housing.

3  This raises an important point: in general, you want to evaluate the progressiveness of an entire tax system rather than one individual tax, because some things are both relatively efficient to tax and disproportionately consumed by the poor. Tax cigarettes and gambling, and you'll hit lower earnings. Tax alcohol by unit of alcohol rather than as a percentage of sale price, and the tax code is relatively subsidizing that playful chardonnay relative to buying a bottle of Birthday Cake Flavored Vodka.