Which Tax Basis Best Balances Economic Goals?

[CRGreathouse]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise. The poor wouldn't be taxed much because their burden on the infrastructure is minimal. The tax money set aside for altruistic dispensation would be considered part of the infrastructure tax funding. Some would ask why and it should be obvious that these citizens are potentially part of the work force and productivity of the nation and should be maintained if not developed to become a productive part of the nation.

So, in summary (again, correct me if I misread you):
1. The purpose of taxation is to increase the collective well-being
2. Ethical taxation involves taxing at a rate proportional to the benefit obtained from government spending (but see #3)
3. 'Lower taxes' for the poor (perhaps better to think of this as a benefit apart from taxes) are a service to the community, not the poor themselves except insofar as they are part of the community.

Interesting; this actually seems to work well.

 

[D H]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise.

The wealthy people in this country would like such a system much, much more than would you. You might want to re-evaluate your thinking as you are advocating a tax system that is much less progressive than is the current system, and may well be regressive. The upper middle class and higher receive zero benefit from the largest part of the federal government. The federal government spending on infrastructure proper is a tiny, tiny portion of the federal budget. Most infrastructure is provided at the local and state level. Those who currently pay the lion's share of the current income taxes would love your proposal.

 

[baywax]

So, in summary (again, correct me if I misread you):
1. The purpose of taxation is to increase the collective well-being
2. Ethical taxation involves taxing at a rate proportional to the benefit obtained from government spending (but see #3)
3. 'Lower taxes' for the poor (perhaps better to think of this as a benefit apart from taxes) are a service to the community, not the poor themselves except insofar as they are part of the community.

Interesting; this actually seems to work well.

Thank my lucky stars I was able to convey my slight understanding of taxation.

Where I'm right out of the loop is where DH has pointed out the short comings of a form of taxation where there are separate states, each with their own form of taxation.

Then there are the lopsided spending habits of any given administration and how their spending is influenced by various lobbyists. For example, large percentages of spending on military intervention in foreign lands and huge "bail outs" to specific and minority groups.

There is also the question of Social Security. But I think I've solved that question because we pay the elders a cheque of Tax Payers money and this offsets the burden they would have imposed on the productive offspring that they have raised for the community, society, the nation and the civilization. So, this act can be seen as another bolstering of infrastructure.

In America you also have the "Foundations" and the "Charities" and of course the "Organized Religions" picking up some slack with their donations and fund raising. But I don't think this should be used as an excuse by Government to slack off on its commitments to a progressive and bettering society. This is because the citizen has paid their tax to better their country, if someone else is doing so privately... all the better.

Take Canada for example. It is in the greater interest of the United States to hold missiles and defense systems whose range include Canada and Mexico in their security net. This is due to the proximity factor of these nations to the nation of the US. But who pays for these systems... the American People. The guy slinging meat patties at BK and the guy in his big brass bank. Both pay to protect the interests of their neighbour. Yet, this is a bit like fence building. When I build a fence between my neighbour and I, we both pay for the materials etc... because it is a fence for both sides. So, is that how the cost of your military prowess is shared? No. I think there must be some other arrangement.

 

[baywax]

The upper middle class and higher receive zero benefit from the largest part of the federal government.

I did try to explain that a person showing a high income is showing a high use of the national or state infrastructure by way of the industries they hold shares in (percentage of responsibility) or by their own industry. Therefore, through the magic of accounting, one could determine exactly how much tax they should be paying according to the quantity and quality of government services their holdings or their industry use.

 

[Dale]

The company making 4 billion dollars a year makes much of that money using the infrastructure of a nation. This company uses the roads, rail, defense, security, airports, waterways, education from K to 12, coast guard and any number of hidden services provided by the tax dollar.

That is true, but regardless of what tax you levy on a company they do not pay it, they only collect it.

 

[baywax]

That is true, but regardless of what tax you levy on a company they do not pay it, they only collect it.

Egads. This comes down to loopholes and requires the "R" word.. regulation. If the tax was not passed on to the consumer it would be much more effective!

This applies to the loopholes of every instance. My own, favorite Prime Minister, Paul Martin of the Liberal Party was the CEO of a huge shipping company. When sworn in as PM he transferred his position to his sons. For the years Paul Martin was PM he was parking his ships in Morocco to avoid owning a company in Canada and paying his taxes.

 

[Dale]

In America you also have the "Foundations" and the "Charities" and of course the "Organized Religions" picking up some slack with their donations and fund raising. But I don't think this should be used as an excuse by Government to slack off on its commitments to a progressive and bettering society.

Why not? The problem with the government involvement in such activities is that the government does this through coersion and its police power. A charity cannot come to your house, sieze your property, and drag you away from your family at the point of a gun, but the government can. A gift from a charity is seen as generosity and is accepted with gratitude, but the same benefit coming from the government replaces generosity with coersion and replaces gratitude with entitlement.

IMO, anything that can be done without coersion and violence should be done without coersion and violence. Government ruins everything good about charity.

Egads. This comes down to loopholes and requires the "R" word.. regulation. If the tax was not passed on to the consumer it would be much more effective!

It has nothing to do with loopholes. The taxes are part of the cost of the product and ultimately the consumer pays for the whole cost of the product.

 

[baywax]

It has nothing to do with loopholes. The taxes are part of the cost of the product and ultimately the consumer pays for the whole cost of the product.

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

 

[baywax]

IMO, anything that can be done without coersion and violence should be done without coersion and violence.

Well, there are Charities and there are charities. Some of them use coersion by flashing crying skinny babies with flies in their eyes to get you softened up. Some of them are run by the mafia and use other techniques to get your money. Some of them have woven such a load of BS for the last 2000 years that they've programed a large percentage of the population's genes to give them money and land. You can hope for less violence etc... but its only going to happen when EDUCATION is universal and free to the citizens of your country. With education comes independence and much less reliance on guns and threats because the alternatives to these conditions should be clearly conveyed during a good, well TAX funded education.

 

[D H]

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

Federal and state antitrust laws make it illegal to go into collusion with other companies, price their products predatorially, or artificially raise prices to take advantage of a crisis such as a hurricane. Short of these legal constraints, a company can charge whatever it wants for its products.

There is one very important law that I omitted in the above list: The law of survival. A business has to charge more for the products it makes or services it renders than it costs to make the products or render the services. Punishment for failure to obey this basic business law is swift and final because businesses that do not follow it quickly cease to exist.

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist. The only loophole here is the hole in some loopy people's heads who do not understand this final law.

 

[russ_watters]

So if I'm working in a factory I'll just defer my taxes to the owner? Don't think so. Why can a company defer its taxes to the consumer yet the consumer has no one to defer their taxes to?

This is a loop hole.

Actually, your company does pay your taxes insofar as if you didn't pay taxes, the company could pay you less because you could afford to live on less.

Either way, the one forking over the money is the one paying the taxes. DH is right, this is a pretty simple fundamental principle of economics.

 

[rbj]

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist.

or they will accept a smaller profit margin (a negative profit margin cannot be acceptable on a long term unless the business is huge and has vast assets).

or they will find other areas to cut cost.

but alternatively, they can pass the increased tax burden on to their customers if the market will let them.

BTW, DH, i did read your other posts in this thread.

 

[CRGreathouse]

Either way, the one forking over the money is the one paying the taxes. DH is right, this is a pretty simple fundamental principle of economics.

No. The party 'actually' paying the taxes is determined by elasticity of demand, not whose pocket the money comes from. If a new tax is imposed on a lifesaving medicine selling for $10, the company producing it can pass the tax along to the consumer entirely. If a new tax is imposed on a product (with high enough margins!) which has perfect substitutes, the company will eat the whole tax (since any price increase will induce customers to substitute).

 

[CRGreathouse]

An ethical taxation would take into account each individual's burden on the infrastructure of the nation in question. This could be done like an accounting exercise. The poor wouldn't be taxed much because their burden on the infrastructure is minimal. The tax money set aside for altruistic dispensation would be considered part of the infrastructure tax funding. Some would ask why and it should be obvious that these citizens are potentially part of the work force and productivity of the nation and should be maintained if not developed to become a productive part of the nation.

The wealthy people in this country would like such a system much, much more than would you. You might want to re-evaluate your thinking as you are advocating a tax system that is much less progressive than is the current system, and may well be regressive. The upper middle class and higher receive zero benefit from the largest part of the federal government. The federal government spending on infrastructure proper is a tiny, tiny portion of the federal budget. Most infrastructure is provided at the local and state level. Those who currently pay the lion's share of the current income taxes would love your proposal.

1. baywax may feel that the current tax system is unfair to the wealthy, regardless of what system baywax might benefit from.
2. Are you claiming that only a small minority of the federal budget benefits the upper and middle classes?

 

[CRGreathouse]

Where I'm right out of the loop is where DH has pointed out the short comings of a form of taxation where there are separate states, each with their own form of taxation.

Deciding what is fair would be a first step toward judging the rightness of taxation at any level, federal or state/local.

Then there are the lopsided spending habits of any given administration and how their spending is influenced by various lobbyists. For example, large percentages of spending on military intervention in foreign lands and huge "bail outs" to specific and minority groups.

These things always feel wrong, but one of the points of this exercise (for me!) is to find out 'why' they feel wrong.

 

[CRGreathouse]

I can think of several justifications for taxation, personally. I'll just throw these out there for comment:
1. Efficiency: A government may be able to provide a service that would be (much) more costly at an individual level. An example might be national defense: protecting my own property might require two armed guards each at $45,000 per year, which is already much more than my yearly taxes.
2. Justice: A government might determine that some programs should be funded even if they are socially inefficient in some sense. Prosecuting a murder may cost society more than the lost productivity of the murder victim, but might be judged worthy.
3. Redistribution: Taking money from the wealthy to give to the poor could be sensible on either ethical or pragmatic grounds. The injustice of the 'theft' is equal to the amount of the redistributive tax plus the deadweight loss, while the poor benefit by the amount of the redistributive tax minus the administrative costs.

The value or cost of paternalism (the "nanny state") should also be considered.

 

[baywax]

Federal and state antitrust laws make it illegal to go into collusion with other companies, price their products predatorially, or artificially raise prices to take advantage of a crisis such as a hurricane. Short of these legal constraints, a company can charge whatever it wants for its products.

There is one very important law that I omitted in the above list: The law of survival. A business has to charge more for the products it makes or services it renders than it costs to make the products or render the services. Punishment for failure to obey this basic business law is swift and final because businesses that do not follow it quickly cease to exist.

If you raise the taxes on a business they will either pass those taxes on to their customers or they will cease to exist. The only loophole here is the hole in some loopy people's heads who do not understand this final law.

As Greathouse has pointed out... if you shuffle the cost of taxes on to your consumer... you lose the consumer to another product or manufacturer. So, its up to the company to decide what they will eat. The cost of the tax or the cost of hurting their customer. Not so loopy. But that said, a regulation that allowed a certain percentage of a tax to be passed along to the consumer may work... and ensure that the citizen is not carrying the entire burden of responsibility that the company is responsible for.

 

[baywax]

Deciding what is fair would be a first step toward judging the rightness of taxation at any level, federal or state/local.



These things always feel wrong, but one of the points of this exercise (for me!) is to find out 'why' they feel wrong.

They feel wrong because they are the results of a "first in your face / first serve" system.

You can call it nepotism or favoritism when there are certain bodies or industries that have the ear of government. Its like a classroom where the people in the front row get all the attention and the benefits from that while the back of the class may catch up in six months.

There are other ways to conduct a government and one comes to mind where the interested parties are invited to sit at a round table. Here there is a chance for each individual's claims to be heard on an equal footing. This approach also allows for the comparison and balancing of each claim to the tax dollars, thus, theoretically producing a balanced result. And balanced = efficient for the most part.

If you've ever seen some of the Canadian news, sometimes you see the summit meetings of the Premiers of each province and territory with the Prime Minister. They are usually seated in a round table setting and they are all lobbying for their province's health care money, road, transit, etc... The balance is achieved somewhat, when the earnings of each province or GPP is brought into question because each province has its own taxation ritual it performs on its citizens.

 

[CRGreathouse]

There are other ways to conduct a government and one comes to mind where the interested parties are invited to sit at a round table. Here there is a chance for each individual's claims to be heard on an equal footing. This approach also allows for the comparison and balancing of each claim to the tax dollars, thus, theoretically producing a balanced result. And balanced = efficient for the most part.

Actually, I don't think so.

Here's an example. Suppose it's a large table and heads of 100 major companies (from 80 different industries) come to discuss their own situations and lobby for policies that will help their companies (and thus their employees). A natural result would be protective tariffs on those 80 industries, making all of the companies more profitable. But companies not represented are squeezed -- many of their raw goods are now more expensive -- and customers are likewise squeezed: many products are significantly more expensive, and almost all of the rest are somewhat more expensive. If they're working in one of the lucky industries their raise may be enough to to combat the second effect but not the first.

Some policies are like this: inefficient, but they distribute the hurt over many people and the benefit over few. I feel that there should be safeguards in place against this, especially since it's so common.

 

[Dale]

Some policies are like this: inefficient, but they distribute the hurt over many people and the benefit over few. I feel that there should be safeguards in place against this, especially since it's so common.

US sugar tarriffs are a perfect example.

 

[baywax]

Actually, I don't think so.

Here's an example. Suppose it's a large table and heads of 100 major companies (from 80 different industries) come to discuss their own situations and lobby for policies that will help their companies (and thus their employees). A natural result would be protective tariffs on those 80 industries, making all of the companies more profitable. But companies not represented are squeezed -- many of their raw goods are now more expensive -- and customers are likewise squeezed: many products are significantly more expensive, and almost all of the rest are somewhat more expensive. If they're working in one of the lucky industries their raise may be enough to to combat the second effect but not the first.

Some policies are like this: inefficient, but they distribute the hurt over many people and the benefit over few. I feel that there should be safeguards in place against this, especially since it's so common.

The table would have to include every industry and every department of government to give a good representation of the country. When each party can see the effects of their policies on the other a better understanding of the whole can be achieved and policies can shift accordingly. But I know its much more complicated than that. For example, when the province of BC looks good because we have timber to sell, people forget about the soft wood lumber tariff imposed by the US on that commodity and they forget about the devastation caused by the pine beetle which has wiped out the soft wood industry in BC. We have what are called have and have not provinces. BC looks like a have but in actual fact the have we have is not. So many factors get lost in a 3-5 day meeting.

 

[D H]

As Greathouse has pointed out... if you shuffle the cost of taxes on to your consumer... you lose the consumer to another product or manufacturer.

Not if every other manufacturer is subject to the same tax increases. Every company will raise its prices, and in this case it won't be collusion.

You are right in one sense. I missed the case where a company cannot pass the cost increases on to the customers because its competition is largely foreign-based companies that are not subject to the domestic taxes on corporations. So, what happens to companies whose competition large comes from non-US companies?

• The US-based company will sell fewer products. Positive consequences: The evil, greedy, Repblican owners won't be quite so wealthy, and the company will not have quite the tax burden it would have otherwise. Negative consequences: The government will find that its plans backfired. Not only are the business taxes not producing the revenue as expected, income tax receipts are down. The evil, greedy Republican owners of companies are the ones who pay the lion's share of the taxes. Another negative consequence: The terminated employees will be in even worse shape than the owners. This last point has a bright side, however: Those unemployed people will likely vote Democratic.
• The company may simply go out of business, with all the workers becoming unemployed. At least this will result in a whole lot of Democratic voters.
• The company can relocate off-shore or be sold to its existing offshore competition, thereby escaping most of the taxes on domestic-based corporations.
• The company can look for other ways of cutting costs, such as moving its manufacturing facilities to a country with cheaper labor.

The US can't tax foreign companies the way it taxes domestic based corporations without violating treaties.

 

[baywax]

Not if every other manufacturer is subject to the same tax increases. Every company will raise its prices, and in this case it won't be collusion.

You are right in one sense. I missed the case where a company cannot pass the cost increases on to the customers because its competition is largely foreign-based companies that are not subject to the domestic taxes on corporations. So, what happens to companies whose competition large comes from non-US companies?

• The US-based company will sell fewer products. Positive consequences: The evil, greedy, Repblican owners won't be quite so wealthy, and the company will not have quite the tax burden it would have otherwise. Negative consequences: The government will find that its plans backfired. Not only are the business taxes not producing the revenue as expected, income tax receipts are down. The evil, greedy Republican owners of companies are the ones who pay the lion's share of the taxes. Another negative consequence: The terminated employees will be in even worse shape than the owners. This last point has a bright side, however: Those unemployed people will likely vote Democratic.
• The company may simply go out of business, with all the workers becoming unemployed. At least this will result in a whole lot of Democratic voters.
• The company can relocate off-shore or be sold to its existing offshore competition, thereby escaping most of the taxes on domestic-based corporations.
• The company can look for other ways of cutting costs, such as moving its manufacturing facilities to a country with cheaper labor.

The US can't tax foreign companies the way it taxes domestic based corporations without violating treaties.

I don't mean to paint anyone as evil. I think taxes need to be fair in the sense that they don't hurt profit margins. If the government used the FIELDS formulae where you charge very little on a lot of products... thus huge volume creates huge income... then there would be an even spread of the burden.

Also, what is stopping government from making money on products it backs or invents?

 

[CRGreathouse]

Not if every other manufacturer is subject to the same tax increases. Every company will raise its prices, and in this case it won't be collusion.

I disagree. First, even if all widget manufacturers are in Brazil and Brazil raises the taxes on widget companies, people can buy whatsits rather than widgets. Second, people can reduce their consumption of all widget-whatsit class items (instead spending their money on cars, fresh fruits, or leisure, perhaps).

Yes, I would expect all widget manufacturers to raise their prices, but that doesn't mean they can pass along all the tax increase for the reasons already given: foreign widget competition, widget substitution, and sector substitution.

sell fewer products. Positive consequences: The evil, greedy, Repblican owners won't be quite so wealthy, and the company will not have quite the tax burden it would have otherwise. Negative consequences: The government will find that its plans backfired. Not only are the business taxes not producing the revenue as expected, income tax receipts are down. The evil, greedy Republican owners of companies are the ones who pay the lion's share of the taxes. Another negative consequence: The terminated employees will be in even worse shape than the owners.

The widget companies' lower tax liability is not a benefit -- the only possible benefit is the government's tax revenue (which may increase or decrease).

The company may simply go out of business, with all the workers becoming unemployed.

This is often the case, though it's really just a special case of the first. Laying off half your workforce is just halfway to going out of business -- and if your sales go down 50%, you're going to have to essentially trim half your employees.

[*]The company can relocate off-shore or be sold to its existing offshore competition, thereby escaping most of the taxes on domestic-based corporations.
[*]The company can look for other ways of cutting costs, such as moving its manufacturing facilities to a country with cheaper labor.

These are also essentially the same. The foreign branches may repatriate some profits to the parent (in Brazil, in my example, or in the US in your example) which could be taxed -- but often the overseas profits are used to develop the overseas presence instead.

 

[CRGreathouse]

The table would have to include every industry and every department of government to give a good representation of the country. When each party can see the effects of their policies on the other a better understanding of the whole can be achieved and policies can shift accordingly. But I know its much more complicated than that. For example, when the province of BC looks good because we have timber to sell, people forget about the soft wood lumber tariff imposed by the US on that commodity and they forget about the devastation caused by the pine beetle which has wiped out the soft wood industry in BC. We have what are called have and have not provinces. BC looks like a have but in actual fact the have we have is not. So many factors get lost in a 3-5 day meeting.

But representing every industry will result in a large enough meeting that some will be ignored... taking us back to the starting point. And this doesn't even deal with the issue of things that are beneficial only to companies but not consumers -- legalizing collusion, for example.

 

[D H]

The widget companies' lower tax liability is not a benefit -- the only possible benefit is the government's tax revenue (which may increase or decrease).

You must have missed the rolls-eyes smilely at the end of the paragraph. To make it very explicit: Any statements regarding the benefits accrued by the government forcing companies to go out of business were strictly tongue-in-cheek.

 

[CRGreathouse]

If the government used the FIELDS formulae where you charge very little on a lot of products... thus huge volume creates huge income... then there would be an even spread of the burden.

In what way should the burden be spread around?


I guess I'd like to split the problem of taxation into two parts: ethical and positive/non-normative. First we decide what would be fair to tax, then we decide (based on what fairness principles are accepted) what method of taxation would be least harmful.

 

[baywax]

In what way should the burden be spread around?


I guess I'd like to split the problem of taxation into two parts: ethical and positive/non-normative. First we decide what would be fair to tax, then we decide (based on what fairness principles are accepted) what method of taxation would be least harmful.

Going back to the General Services Tax. This applied to every purchase of most goods with regulations stating things like buying a dozen buns or a loaf of bread or a jug of milk would be exempt from the tax... but the companies creating these items collects GST on most items... passing the Government's taxation along to the consumer in full view of the consumer. In fact each service company charges GST for the govt and hands it in quarterly. The cut to begin with was 7%. Now its been lowered for popularity issues to 5%... just as this economic throttling has taken place. This taxation technique helped take the burden of running a nation off the big producers to some degree. It was like the FIELDS model in that it applied across the board to every service and many items. Often only representing a few cents here and there for the low-middle income consumer.

Luxury tax is another item that works to a degree. It hands the responsibility of a person's choice back to them in the form of a tax that will pay for search and rescue, airports, polluting manufacturing clean up costs, smoother roads etc... because the car or stereo or Cessna manufacturer can't build that tax into there pricing but they can blame the government for it. In fact the rebates of up to $2000 on gas efficient vehicles provide the manufacturer with incentives and a sign that the government gives back.. sometimes.

 

[CRGreathouse]

Luxury tax is another item that works to a degree. It hands the responsibility of a person's choice back to them in the form of a tax that will pay for search and rescue, airports, polluting manufacturing clean up costs, smoother roads etc.

The purpose, presumably, of a luxury tax is to tax the rich more than the poor, especially when they're spending on 'frivolous' things instead of investing in the stock market or paying for their kids' college tuition.

My point about separating ethics from non-normative economic analysis applies here: I'd like to compare the efficiency of

• the current system
• the current system with higher lux taxes and lower income tax on the rich
• the current system with lower lux taxes and higher income tax on the rich

the car or stereo or Cessna manufacturer can't build that tax into there pricing but they can blame the government for it.

Car, stereo, and Cessna manufacturers do build the taxes into their prices. If car companies no longer needed to pay taxes, they could make more money by dropping their price (not by the full amount of the tax, but partway) in order to sell more units.

 

[baywax]

Car, stereo, and Cessna manufacturers do build the taxes into their prices.

Sorry... what I was saying there was that the GST or Luxury Tax is alway added to the price of a luxury item... it shows up on the invoice as a government imposed tax... and is not hidden... unethically... from the consumer.