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Income Tax vs Consumption, Pollution and Land Taxes:

It's been a while since I posted...

Anyway, this conversation is about taxes (as you can see) and which taxes are good and which are bad. Contrary to popular belief, not all taxes are bad (I'm saying this despite my right-wing thought). In fact, some taxes, although imposing economic cost to society, might bring about societal benefit an long run economic benefit, like for example, the smoking tax. Which bring us too...

It is, in my opinion, favorable for a hypothetical country to eliminate the income tax altogether and replace them with Consumption, Pollution and Land taxes. After all, why punish good economic behavior (saving which drives investment, which is inhibited by the income tax), and not bad economic behavior (Like wasteful consumption, pollution and wasteful use of land through building mansions)? There are a few problems with this approach.

First, the middle class and the poor consume more of their marginal propensity. This, however, can be countered by introducing a high negative income tax, set at $500 000. Anyone with less than $500 000 income per annum will receive money proportional to their income, but will not reduce the incentives to work. What is beautiful about this system is that in some cases, it actually encourages work (You can't get the benefits if you have zero income). See Wikipedia article.

Second, the pollution tax will have an effect more on the poor, again due to marginal propensity. I do not have a solution for that yet. As for the middle class, the price of oil has been hiking for some time, and they don't seem to be affected, so what's a few more dollars on a barrel of oil. Also, keep in mind that higher oil prices will encourage fuel efficiency facilitated through the price mechanism.

Third, Land Taxes will force many homeowners to evict their homes and move to apartments. I have to question whether or not this is a bad thing. The poor in the United States at least, are quite lucky: approximately 50% will own the homes they live in, 75% have air conditioning, 75% own a car, 30% own two or more cars, 95% have color T Vs and 50% have two or more color T Vs. Oh, and the average poor American has about 10% more living space than the average European, poor and non poor. Land taxes (along with the consumption tax) will force them to behave more economically. Land taxes are also progressive in nature, despite being technically flat, because the rich own much more land (mansions and factories) than the poor. The Land tax will more likely do more good than harm.

I am compelled to argue that these policies will produce more economic benefit than harm. It also has the interesting effect of reducing wastefulness and encouraging efficiency. The only downside that I can see is that governments have to gradually decrease their spending because people are encouraged to pollute less, thus bringing less revenues.

Thoughts?
 
 2 USAF713, Sat, 10th Dec '11 10:24:01 AM from the United States
I changed accounts.
Well, problem is, now that there is less overall tax revenue, I question how you plan to afford your "negative tax." You need money to pay people things, and debt is pointless to bring up in a Right-wing government that will simply crucify you for suggesting it.

I do not have a solution for that yet.

Then come back when you do.

Third, Land Taxes will force many homeowners to evict their homes and move to apartments.

And yet it's still regressive because of this, despite the rich owning more land. They don't have to worry about getting evicted. The poor do. Of course, they're not "living within their means, " even if they bought the house when they were. That doesn't really matter though, so long as our precious supply-side providers can still "create jobs."

Nevermind that supply isn't the problem at the moment unless you're a small business—and most tax breaks "intended for" the small business owners don't actually help, from personal experience—while demand is.
I am now known as Flyboy.
 3 Oh So Into Cats, Sat, 10th Dec '11 10:37:42 AM from The Sand Wastes Relationship Status: Showing feelings of an almost human nature
CANON!!
But savings is not necessarily a good thing. That's part of the financial crisis right now.
"Beware of the wolves. They were raised by wolves."

Eidolonomics: ~60.4k/100,000 words
Moar and Moar and Moar
Yup. It's exactly the wrong direction.

There's actually too much investment in the system as it is. It creates huge bubbles...that's what resulted in the massive housing bubble as well, for what it's worth..policies that would result in more investment, as if it was a good thing, are wrong right off the bat. Full stop. That's not saying that the distribution of said investment capital is correct..by and large it's not..but that probably requires entirely different tax and structural concepts (I personally like the idea of a high capital gains tax for short-assets reducing over time to a very small tax for more longer held assets)

Now, that you don't have a solution for the problem of pollution taxes being unfair on the poor, that's an easy one. You SHOULD have a solution for that...rebates. You send a substantial rebate to everybody, and then the money gets pooled back in. Not that this makes this good policy..I'm on the fence about it, as I think it might be something that's better handled via urban planning, but whatever.

Finally, trying to move people from owning property to rental, is a net shift of income/wealth from households to larger firms. Now this might be a necessary evil, but economically, it does make the current problems even worse.

In short, your ideas are going in the exact wrong direction. It stems from the concept that demand is basically unlimited...which it isn't. Not by a long shot.

By the way, the whole, poverty isn't a problem, they have stuff, isn't really a good argument. Because what it sounds like is that people who work shouldn't have that stuff. Now, if you want to embrace that, that's fine, but you're talking about a complete cultural and economic shift, and considering you self-identify as right-wing, it's actually much more of a socialistic or even communistic outlook.

Democracy is the process in which we determine the government that we deserve
 5 Oh So Into Cats, Sat, 10th Dec '11 11:06:24 AM from The Sand Wastes Relationship Status: Showing feelings of an almost human nature
CANON!!
Have a consumption tax for the poor/middle class and an investment tax on the upper classes. Hit everyone where it hurts the most.
"Beware of the wolves. They were raised by wolves."

Eidolonomics: ~60.4k/100,000 words
 6 Ailedhoo, Sat, 10th Dec '11 11:13:27 AM from an unknown location
The most important thing is to police the taxes. A major problem is that too many rich figures evade paying tax via loopholes in the law. This must be corrected!
 7 Aceof Spades, Sat, 10th Dec '11 11:35:26 AM from The Wild Blue Yonder Relationship Status: I wanna know about these strangers like me
Any tax that forces people out of homes they own outright is a bad thing, greedspectator. They were living economically when they were saving up enough so that they could buy their home and no longer have to worry about rent or mortgages. Your idea is shit based on that alone.
Then come back when you do.
And what if that never happens? We need to bite the bullet on this, and the sooner the better. If it disproportionately affects the poor, so be it. If we need to counteract that, we will do so elsewhere.
"I even like the idea of a nice man who sees me when I'm sleeping and knows when I'm awake. And that man is Barack Obama." - Bill Maher
 9 Aceof Spades, Sat, 10th Dec '11 1:00:24 PM from The Wild Blue Yonder Relationship Status: I wanna know about these strangers like me
I think USAF's point is that a pollution tax that disproportionately affects the poor is a fucking bad idea. Particularly as it's big industries that are causing the most pollution. (That is what that particularly comment was aimed at.)

Pollution taxes on businesses make sense. Pollution taxes on consumers not so much; we can only purchase what the businesses have made available to us. Sure, there are people making aggressive efforts to reduce their impact on the environment, but those people have the time and money to put into that.
[up] We all contribute to pollution. Focusing the blame on the rich is ridiculous. They respond to consumer demand, after all.
"I even like the idea of a nice man who sees me when I'm sleeping and knows when I'm awake. And that man is Barack Obama." - Bill Maher
As I see it, it's really a choice of evils. There are some who would argue that as long as the amount of income and tax remains the same it really doesn't matter how the government chooses to extract the tax. However, taxes also discourage certain behaviors, and that can be harmful to the economy.
  • Income tax can discourage making money. Because most income tax systems are progressive, for most of people, their current income tax isn't enough to make them seriously consider quitting their job just so they won't have to pay taxes, but it does encourage employers to make decisions based on how it would effect their taxes rather than what's best for the ccompany and the local or global economy, and that can be very harmful to the economy. An income tax would result in a society where people try to hide or preserve income by keeping it in nonmonetary form for as long as possible and making investment decisions that are in part dependant on local or regional differences in tax, as well as the possibility of high unemployment due to employers deciding they're better off hiring elsewhere.
  • Consumption tax discourages people from consuming, which hurts the economy. A more progressive sales tax charges more for items the government decides that poor people don't need, but that hurts jobs in industries like aviation and shipbuilding. And if you're a libertarian, simply having a list of "items the government decides that poor people don't need" is not a good thing either. A consumption taxwould result in a society where people earn more but prices are higher, i.e., inflation, more people save rather than spend, which limits economic growth, and the poor are more dependant on subsidies or a "progressive sales tax" that encourages them to buy "government approved products", as well as the possibility of high unemployment due to a decrease in demand.
  • A pollution tax would primarily raise the price of fuel, power, and packaging. Unfortunately, those three areas can really cripple a stagnant economy, because farming, minng, manufacturing, etc. are all dependant on these things to get their goods and services to where it needs to go to meet the demand. Thus prices skyrocket and demand goes down. A pollution tax would result in a society that was more environmentally consciencious, in deed if not necessarily in thought, but the prices for household utilities, goods, and services would be very high, as well as the possibility of high unemployment due to a decrease in demand.
  • A land tax would, as has been mentioned, increase housing costs, both for landowners, who pay the actual tax, and for renters, who would have a rent increase because the landlord is passing on their costs to avoid foreclosure. As people suffer forclosures and evictions, homelessness increases, and property values fall. A land tax would result in a society where people lived in smaller homes, land and consumer products were cheap, and homeownrership was a bad investment except for rental companies. This would likely in turn discourage sales of large durable goods because people couldn't fit them into their tiny homes. With real estate, construction, appliances, etc. all taking a hit, unemployment would again tend to be high. Plus homelessness would be a serious problem.

So, do some taxes really cause more economic harm than others, or are they all essentially equal? And if there is a difference, are the noneconomic differences enough to justify deliberately harming the economy?

edited 10th Dec '11 1:28:50 PM by FrodoGoofballCoTV

Consumption tax discourages people from consuming, which hurts the economy.
... in the short run. Decreasing resource consumption is good for the environment, though which benefits the economy in the long run. Maybe some jobs rely on people buying things they don't need, but that money that used to go into consumption could instead go into getting said people new, more meaningful jobs.

edited 10th Dec '11 1:45:20 PM by HiddenFacedMatt

"I even like the idea of a nice man who sees me when I'm sleeping and knows when I'm awake. And that man is Barack Obama." - Bill Maher
Moar and Moar and Moar
And that might not be a bad thing, but it'll require basically massive economic reforms and rebalancing, and in ways that I'm guessing the OP would not support.

The question I ask, is if you are personally comfortable with most people working 20-24 hour weeks. Not just the rich and educated. Everybody. Especially the lower classes, actually.

Democracy is the process in which we determine the government that we deserve
 14 Oh So Into Cats, Sat, 10th Dec '11 2:22:43 PM from The Sand Wastes Relationship Status: Showing feelings of an almost human nature
CANON!!
Would anything get done in a 20-24 hour work week? That's less than most kids are at school a week.
"Beware of the wolves. They were raised by wolves."

Eidolonomics: ~60.4k/100,000 words
Moar and Moar and Moar
Sure. We'd consume much less and accordingly we'd produce much less. Not as much would get done because not as much would need to get done.

Economic theory actually states that lets say we go from a 40-hour average work week to a 20 hour work week. We would actually produce quite a bit more than half of what we produce now, because the first hour is the most productive and it goes down from there. Now I think this is actually not the whole story...you have to look at work flows to see this, I suspect that your 2nd-4th hours are your most productive, actually, because people have to get settled in, but the point still remains.

For what it's worth, I think what is likely is a world where computer/network technology becomes so cheap and ubiquitous that most of our non-survival consumption happens digitally.

edited 10th Dec '11 2:42:06 PM by Karmakin

Democracy is the process in which we determine the government that we deserve
Well, it might be better for society if 100% of the poor that wanted work worked 20-24 hours a week than have half the poor working 40-50+ hours a week and the other half unemployed.

In the 50% unemployment society, you'd see a disconnect between the employed and unemployed, I think.

The other question though, is which would be better, everyone working 20-24 hours, or everyone working 40+ hours? We might get more done working more hours, but if there's not enough demand to justify anyone having 40+ hour workweek except for workaholics, then the extra work might be wasted anyway.

But I'm not sure we're to that point yet.

Sure. We'd consume much less and accordingly we'd produce much less. Not as much would get done because not as much would need to get done.
Actually, we'd probably decrease the amount we'd need to get done much more drastically than the amount we'd get done, because with less consumption and production, we'd be using fewer natural resources.

edited 10th Dec '11 2:44:41 PM by HiddenFacedMatt

"I even like the idea of a nice man who sees me when I'm sleeping and knows when I'm awake. And that man is Barack Obama." - Bill Maher
 18 Oh So Into Cats, Sat, 10th Dec '11 2:44:45 PM from The Sand Wastes Relationship Status: Showing feelings of an almost human nature
CANON!!
I know people are working too much as it is now, but I was thinking 30-35 hour work week would be best. 20-24 seems too low.
"Beware of the wolves. They were raised by wolves."

Eidolonomics: ~60.4k/100,000 words
Moar and Moar and Moar
Yes, 30-35 is probably the ideal number right now. 20-24 is down the road as automation and productivity continue to improve.

Edit: The point is that there's a lot of people out there, for whom the entire concept is unthinkable. That people should actually be working more, and not less.

edited 10th Dec '11 2:55:31 PM by Karmakin

Democracy is the process in which we determine the government that we deserve
名無しさん
Progressive income tax = Bad Idea*
Negative income tax with (rather high, for that matter) upper limits = Bad Idea*
Flat-rate income tax supplemented by various other schemes = Better Idea

Land taxes = Bad Idea
Sale-of-land taxes = Better Idea*

Across-the-board consumption taxes = Bad Idea*
Luxury taxes = Better Idea

Pollution taxes on consumers = Bad Idea
Pollution taxes on producers, trickling down to consumers through price = Better Idea

edited 10th Dec '11 8:17:29 PM by ekuseruekuseru

Just to clarify: I never meant a pollution tax on consumers. I meant a pollution tax on producers. I don't think it's possible to monitor every single car for the pollution they make, but it is feasible to monitor factories.

For the consumption tax under consumption problem, I don't really think it exists. After all, investment either responds to immediate demand or responds to future demand. A consumption tax would reduce immediate demand, but will encourage savings for future demand. In the end, the long term benefits are usually better than the short term costs. The notion of under consumption itself, is in my opinion, utterly implausible. When a person saves money, he will do so for either future consumption or simply to hoard money. If he is simply saving to hoard money, then a liquidity trap might occur. However, all that hoarded money is going to be invested by someone (the banking system facilitates this), and the investment will either gain profit (benefiting the economy) or not. If the investment indeed failed, then the investor and the savor loses money (although the saver might not notice), and thus the failed investment actually constitutes as consumption (which, in all its forms, is the mere destruction of resources). There can be made a case that there isn't enough investment of the saved money, but I find this assertion without evidence. Asia has the highest savings rate in the world, and yet there isn't a liquidity trap or a decline in consumption. Also, note that income taxes in Asia are very low compared to the US, which is one of the reasons there is a high savings rate. A low income tax, however, also encourages investment because firms may keep more of their profits. Given that a low income tax both encourages savings and investment, I find it hard to believe a low income tax and a consumption tax might create a liquidity trap or a decline in consumption. After all, if there are excess production of a certain good, prices will plummet for that good, discouraging further investment of it and encouraging consumption for it. Thus a general glut (too much investment on a certain good with not enough consumption for said good) can only occur if the supply side of said good is heavily subsidized or if the demand side of said good is isolated from the true market price, both which requires government intervention to actually happen. So, unless all sectors in the US economy is in a general glut there can be no significant under consumption. Seriously, stop with the under consumption stuff.

And for those who accuse me of being socialist, please, I'm advocating the destruction of the income tax here. Sure, the land tax might be socialist, but hell, no one actually creates land. You can only own what you create, whether it is services or goods, but what you don't own what you did not create. I can't own a parcel of land just because I built a fence around it. I own the fence, sure, but not the land.

Edit: No, the US is not in a general glut. This is mostly because most investment isn't even in production (I'm not sure whether or not this is a bad thing) but on services and high-tech research.

And to clarify my position on demand in a rather simplistic manner: In order to buy something in the market, you need money. In order to make money, you have to sell something. Thus, you have to produce, sell then consume. Production thus drives it's own consumption (although I admit that money itself has a value derived from the demand of legal tender, and this might shift the equation to the money accumulation part). Marginal utility also kicks in here to prevent general gluts from occurring: The more there is of something, the less it is valued. Thus, if we have an over investment of, let's say, action figures, then each purchase of action figures will be cheaper. The people who purchase action figures now have more money to spend on other goods, thus increasing net consumption. Or, those people will save the money for future consumption in banks, where the money will be used for investment.

edited 11th Dec '11 7:54:36 AM by greedyspectator

 
Moar and Moar and Moar
But as more and more is used for investment, then less and less is used for demand, which makes making good use of that investment harder and harder, which means there's less employment, and as such less demand, and so on.

That's a different way to look at the traditional liquidity trap argument.

Where it also goes wrong, is in terms of analyzing supply/demand equilibriums, is that most people visualize linear charts when the reality is that this isn't really the case. Demand is always more inelastic than it seems. Action figures, could be free, and I wouldn't take them, as many people wouldn't as i simply don't have the room for them or the time to enjoy them or whatever. I could have every game for free and I would say meh to most of them, and so on.

Because of this, lower demand does not always result in lower prices. In fact, it sometimes results in higher prices. The people who want your product will pay extra for it, and dropping its price isn't worth that premium. This in fact breaks the entire system. You can actually make maximum profit without reaching the equilibrium point.

This actually makes inequality, not just between the top 5% and everybody else, but in terms of the top 50% and those below them, a much more serious problem than it would normally be.

And I'm not saying that you're a socialist. What I'm saying is that the culture that you (and other right-wingers) seem to think would be ideal, is actually one that would be more than likely to embrace strong socialistic ideals rather than heavily lassiz-faire ones. A culture that truly rewarded the rejection of being materialistic self-indulgent as being ideal, would do it across the board, with vast social and economic ramifications. It would be a drastically down-ramped economy. Saving wouldn't be for further consumption..it would be for a rainy day, or to be more specific, in and itself would be a social marker. You would show people your bankbook to show off, and not your new car or your new TV. Saving would be for its own sake in and of itself. And yes, that would be very problematic. (Assuming it doesn't come with economic and cultural reforms to make it fine)

What you're more talking about, and tends to come out of right-wing circles is the concept of the "Noble Poor", that is, that the poor have a duty to be better, more moral, more responsible decision makers than the rest of us. This simply is not realistic. The poor play to the same beat as the rest of us. You can't isolate them out.

Which means yes, they'll go and try and get nice TV's and cell phones on the cheap so they can feel connected to society just like the rest of us. And while it might not be the BEST use of money, it's completely understandable.

Democracy is the process in which we determine the government that we deserve
[up]You seem to think that supply and demand are isolated from each other, which is not the case. Just as much as demand can influence supply, supply can influence demand, regardless of how sticky demand is. Also, consider this: Investment that fails is ultimately a consumption of resources, hence falls into the category of demand. Investment that succeeds ultimately increases resources, hence falls into the category of supply. This is what's so convenient about investment: It actually creates both a demand for resources and a supply of it. Let's say I invest in automobiles: I have to consume steel before being able to supply automobiles, which moves the supply curve up and ultimately reduces the price of cars, and causing people who purchase cars have more money on other purchases, who either use that money or save it. Either way is good for the economy, although saving is in my opinion more optimal. Increased investment therefore not only increases supply, but also demand, because part of investment itself is consumption and part of it is supply. This is why those who are overinvestment advocates, are, in my opinion, ultimately wrong. Back to my automobile analogy: If I consume more steel to make more cars, I ultimately create demand for steel, which creates investment on steel and demand for manufacturing equipment, which creates investment on manufacturing equipment, and so on. Empirically, the countries with the most investment are the countries with the most consumption (China's rising consumption can be attributed to this), and an increase investment usually comes first before the increase in consumption.

Edit: I'm different than most right-wingers in my social views. I don't really care what people are doing as long as they do not violate the rights of others. I'm republican in terms of expediency, not on principle.

edited 12th Dec '11 1:28:51 AM by greedyspectator

 
Moar and Moar and Moar
For what it's worth I'm not radical in terms of supply/demand balance, generally speaking I usually come down somewhere in the middle. It's just that right now, this very second, the real-world balance in terms of where policy needs to target is almost entirely on the demand point of view. There's a massive investment bubble, even still, in my opinion (I go by Price to Dividend ratios generally for my analysis), corporations are sitting on mounds of cash, etc.

It's hardcore, really.

And yes, supply can effect demand, and it's a big circle, my main point is over the last few decades, productivity gains without a sustained full employment scenario, at least in the US has resulted in the balance becoming entirely out of whack, and that's the problem. Because of this, demand is suffering, which slows down the entire circle.

This was actually intentional, as the primary focus was combating inflation from the supply-side. (Mind you, I think demand-side can drive inflation as well, but this is primarily a cultural problem I think, this is the inelasticity of demand I talked about)

And maybe this is necessary, and that's fine. But it's going to result in lower employment levels and if that's necessary then it's something that we're going to have to be willing to pay for via social safety net programs.
Democracy is the process in which we determine the government that we deserve
[up]As i have mentioned before, Investment affects both supply and demand. If there is a huge investment bubble, there will also be a huge amount of consumption required by said investment, which in turn creates investment of said requirement, which creates jobs, etc. What I'm trying to say here is simple, really. In any economy you have to produce before you consume, and if there is too much of something, prices will plummet (marginal utility) thus discouraging further investment until demand catches up. Thus, supply and demand has always moved together, even in investment bubbles. Case in point, during the late 2000s financial crises, the price of house exploded because of greater demand stimulated by cheap credit, which in turn is responded with an increase in the supply on houses. When suddenly the credit literally evaporates and demand shrunk, the price of housing plummeted, discouraging further investment in housing.

Combating inflation is done by controlling the supply of money. Simply put, if the supply outpaces demand, there is inflation. There is no way to combat inflation through demand simply because the government can't exactly brainwash people to want less or more money.

There is also, as 68% of economists agree, a natural rate of unemployment. Governments can only reduce this rate at the risk of inflation, which if the stagflation of the 1970s is a good experience, a very bad idea that will wreck the economy as a whole. In the long run, the unemployment rate will tend towards this natural rate. Depending on the demand for labor and it's supply, the natural unemployment rate might be 0%.
 
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