Do trickle-down economic theories work?

[freeRadical]

My point was that money is usually taxed more than once. Once I’ve paid tax on a dollar, why should anyone else get to collect a tax on it. If I get paid with money that was taxed, no matter who paid the tax, or who collected it, why should it be taxed?

My point was that it is ridiculous to tax income period, much less multiple times. How do you justify that? I have never heard one good justification for taxing income. We had to amend the Constitution in the first place to do it. A big mistake.

So, no taxes on earned income. So what is left? Use fees only? Does that mean you have no problem with taxing unearned income (interest, capital gains, inheritance, windfall profits)?

I only support two types of taxes:

A tax on the unimproved value of land (similar to a property tax)/
Consumption taxes

No I don’t support taxing unearned income and I don’t support taxing wealth. I still wish someone would tell me the justification for taxing labor, especially a progressive tax?

You do know that most of the federal income tax you pay does not go to pay for services that you directly benefit from right? Most of it is spent on transfer payments.

By the by, lowering taxes may mean that people and corporations have more to spend, but it doesn’t mean they spend more. Lowering the taxes on employers does not mean they will share it with their employees. It doesn’t even mean (in the case of corporations) that they will share it with their shareholders.

What people chose to do with their money is their business, not mine, not yours, and definitely not the government’s. I really don’t care if they chose to spend it, save it, or invest it. If employers choose to pay their workers more as a result of lower taxes, fine, if they don’t, fine. It’s none of my business and none of yours. If corporations want to share it with their shareholders, fine, if they don’t, fine. It’s not my business and not yours. Why are you so concerned with what private individuals and businesses do with their money? It’s theirs to do with as they please.

 

[sallybutler]

My point was that it is ridiculous to tax income period, much less multiple times. How do you justify that? I have never heard one good justification for taxing income. We had to amend the Constitution in the first place to do it. A big mistake.

I only support two types of taxes:

A tax on the unimproved value of land (similar to a property tax)/
Consumption taxes

No I don’t support taxing unearned income and I don’t support taxing wealth. I still wish someone would tell me the justification for taxing labor, especially a progressive tax?

You do know that most of the federal income tax you pay does not go to pay for services that you directly benefit from right? Most of it is spent on transfer payments.

What people chose to do with their money is their business, not mine, not yours, and definitely not the government’s. I really don’t care if they chose to spend it, save it, or invest it. If employers choose to pay their workers more as a result of lower taxes, fine, if they don’t, fine. It’s none of my business and none of yours. If corporations want to share it with their shareholders, fine, if they don’t, fine. It’s not my business and not yours. Why are you so concerned with what private individuals and businesses do with their money? It’s theirs to do with as they please.

Define un-(name removed by moderator)roved property. Is it un-(name removed by moderator)roved from the state God created it in, or from the state you bought it in? What constitutes an improvement? A fence, a building, a deer blind, a walking path, a paved road?

What constitutes consumption? Is it only if you buy a physical product? Why wouldn’t someone buying my abilities (aka hiring me) not be considered a consumer of my talents and abilities? I sold my services to them, they consumed my time. And who should pay the taxes, the consumer or the seller?

 

[freeRadical]

Define un-(name removed by moderator)roved property. Is it un-(name removed by moderator)roved from the state God created it in, or from the state you bought it in? What constitutes an improvement? A fence, a building, a deer blind, a walking path, a paved road?

What constitutes consumption? Is it only if you buy a physical product? Why wouldn’t someone buying my abilities (aka hiring me) not be considered a consumer of my talents and abilities? I sold my services to them, they consumed my time. And who should pay the taxes, the consumer or the seller?

I mean the economic definition of those two things. Here you go:

Land value tax: en.wikipedia.org/wiki/Land_value_tax

Consumption tax: en.wikipedia.org/wiki/Consumption_tax

I don’t get what you are trying to say with your second paragraph. When someone hires you, they pay you do they not? That is the “tax” they pay for “consuming” your talents and abilities.

 

[Zoltan_Cobalt]

Oh, so now you are admitting that there is a case for regulation. It seems that you have backpedaled from your original claim.

Not really. I have spelled it out before.

If physical force is to be barred from social relationships, we need an institution charged with the task of protecting ourr rights under an objective code of rules.

This is the task of a proper government—its basic task, its only moral justification and the reason why we do need a government.

 

[freeRadical]

Not really. I have spelled it out before.

If physical force is to be barred from social relationships, we need an institution charged with the task of protecting ourr rights under an objective code of rules.

This is the task of a proper government—its basic task, its only moral justification and the reason why we do need a government.

You posted this earlier:

I believe that Free Market outcomes may, on occasion, be improved by limited, judicious regulation. But it is never worthwhile to suppress the market.

So, I’m confused. Are you for or against regulation?

BTW, government intervention isn’t about “improving” free market outcomes. It is about correcting market failures, reducing deadweight loss, and bringing the market back into it’s “true” equilibrium.

 

[sallybutler]

I mean the economic definition of those two things. Here you go:

Land value tax: en.wikipedia.org/wiki/Land_value_tax

Consumption tax: en.wikipedia.org/wiki/Consumption_tax

I don’t get what you are trying to say with your second paragraph. When someone hires you, they pay you do they not? That is the “tax” they pay for “consuming” your talents and abilities.

To answer your last question first. No, a tax is collected by and paid to the state. If no one pays anything to the state (or per Wikipedia, the functional equivalent), no one has been taxed. They have just traded product (in the form of work output) for cash.

The problem with the land value tax is deciding what it’s potential is. If you think property taxes are high now, change over to a land value tax . A single family home was built, but it could have more potential if it had an apartment building so the tax is based on it having the non-existent apt. A swamp could be drained and a parking lot other on it, so that is what the tax is based on.

Wikipedia defines consumption tax as a tax on goods AND services. So, yes, a true consumption tax would include paying taxes on the services people provide to you including your hairdresser or barber, your dentist, your employees.

 

[LeafByNiggle]

Wikipedia defines consumption tax as a tax on goods AND services. So, yes, a true consumption tax would include paying taxes on the services people provide to you including your hairdresser or barber, your dentist, your employees.

With regard to taxes, there is usually a distinction between consumption as the end (giving pleasure and enjoyment to the consumer), and goods and services used in the creation of other goods and services - that is, the cost of doing business. Tax is not usually applied on payments made by businesses to make their product. That is why it is not normal to think of wages as subject to consumption tax on the part of the employer. They are not consuming their employees’ services as an end it and of itself. Wages are sometimes taxed from the employee’s perspective. Then it is called income tax. But from the employer’s point of view, wages are a business expense and deductible from their corporate income tax.

 

[LeafByNiggle]

My point was that it is ridiculous to tax income period, much less multiple times. How do you justify that? I have never heard one good justification for taxing income. We had to amend the Constitution in the first place to do it. A big mistake.

I only support two types of taxes:

A tax on the unimproved value of land (similar to a property tax)/
Consumption taxes

No I don’t support taxing unearned income and I don’t support taxing wealth. I still wish someone would tell me the justification for taxing labor, especially a progressive tax?

Taxing the unimproved value of land is not always the fairest tax either. What if someone has a lot of land and very little money? He would be unable to pay the tax and would have to sell the land. If his childhood home happens to be on that land, it can be a sad thing when the person has to leave his home. On the other hand, taxing based on income does correlate a little better with ability to pay. Now there are instances where a person might have a good income, but also have an exceptionally high necessary expense, such as high medical bills. That is where deductions kick in. They are designed to adjust gross income figures to disposable income - income that the person could pay without incurring excessive hardship. So all in all, it seems that income is fairer than property taxes, based on the ability to pay. Consumption tax is good too, as long as you have an exception for items whose consumption is necessary for life, such as food.

 

[sallybutler]

With regard to taxes, there is usually a distinction between consumption as the end (giving pleasure and enjoyment to the consumer), and goods and services used in the creation of other goods and services - that is, the cost of doing business. Tax is not usually applied on payments made by businesses to make their product. That is why it is not normal to think of wages as subject to consumption tax on the part of the employer. They are not consuming their employees’ services as an end it and of itself. Wages are sometimes taxed from the employee’s perspective. Then it is called income tax. But from the employer’s point of view, wages are a business expense and deductible from their corporate income tax.

However, if, as free radical was advocating, you get rid of all income and business taxes and replace it with a consumption tax, then shouldn’t services be considered taxable in the same way as goods.

When a company hires a service to clean their business, why is that different then hiring a person as an employee to clean the building? The company treats either as business expenses. They just book it under different classifications. Of course, when they hire a service, they can say that they’ve lowered their employee costs. The total price is usually the same (the headache price may be lower, but often the amount of control is also).

And yes, the employee is giving ‘pleasure and enjoyment’ to the employer. The employer wanted a job done. The job was done, so the employer is benefiting, so they are paying for that benefit. They didn’t have to do the work themself. They are enjoying the ability to do something else.

While we don’t always think of services as being goods, they aren’t as obviously tangible as, say an orange is, we are told to sell ourselves to prospective employers. Treat yourself like a product, market yourself.

 

[freeRadical]

The problem with the land value tax is deciding what it’s potential is. If you think property taxes are high now, change over to a land value tax . A single family home was built, but it could have more potential if it had an apartment building so the tax is based on it having the non-existent apt. A swamp could be drained and a parking lot other on it, so that is what the tax is based on.

A land value tax might be higher then property taxes in some cases it might be lower. My problem with property taxes is not that they are to high, it is that they tax the improvements people make to their land with their own money. It’s just another form of taxing income. The economic theory on land value taxes is pretty robust. It would not be hard to calculate one just like it isn’t hard to calculate a property tax. A land value tax would just be the value of the land minus the value of the property on it.

Wikipedia defines consumption tax as a tax on goods AND services. So, yes, a true consumption tax would include paying taxes on the services people provide to you including your hairdresser or barber, your dentist, your employees.

Yes, a consumption tax would tax services you receive from a barber and a dentist but it would not tax the labor you receive from your employees. Labor from employees is not considered a service in economics. The employer is paying for the services of the employee, it is not getting them for free. It seems you are trying to argue semantics, which I don’t have time for.

 

[freeRadical]

With regard to taxes, there is usually a distinction between consumption as the end (giving pleasure and enjoyment to the consumer), and goods and services used in the creation of other goods and services - that is, the cost of doing business. Tax is not usually applied on payments made by businesses to make their product. That is why it is not normal to think of wages as subject to consumption tax on the part of the employer. They are not consuming their employees’ services as an end it and of itself. Wages are sometimes taxed from the employee’s perspective. Then it is called income tax. But from the employer’s point of view, wages are a business expense and deductible from their corporate income tax.

Under a consumption tax, businesses would pay a tax on the goods or services they use as (name removed by moderator)uts into making a final product, just like a private individual would.

 

[freeRadical]

Taxing the unimproved value of land is not always the fairest tax either. What if someone has a lot of land and very little money? He would be unable to pay the tax and would have to sell the land. If his childhood home happens to be on that land, it can be a sad thing when the person has to leave his home.

If a person owns land and can’t afford to pay a land value tax, what makes you think they have the ability to pay a property tax? In case of a piece of land with a home on it, the property tax would be higher then the land value tax.

On the other hand, taxing based on income does correlate a little better with ability to pay. Now there are instances where a person might have a good income, but also have an exceptionally high necessary expense, such as high medical bills. That is where deductions kick in. They are designed to adjust gross income figures to disposable income - income that the person could pay without incurring excessive hardship. So all in all, it seems that income is fairer than property taxes, based on the ability to pay. Consumption tax is good too, as long as you have an exception for items whose consumption is necessary for life, such as food.

Why is an income tax fairer then a consumption tax? Why is taxing income fair at all? It is an arbitrary tax based on income earned through labor. Most consumption taxes do have some sort of deduction built in just like income taxes do.

 

[freeRadical]

However, if, as free radical was advocating, you get rid of all income and business taxes and replace it with a consumption tax, then shouldn’t services be considered taxable in the same way as goods.

Services are taxed under a consumption tax.

When a company hires a service to clean their business, why is that different then hiring a person as an employee to clean the building? The company treats either as business expenses. They just book it under different classifications. Of course, when they hire a service, they can say that they’ve lowered their employee costs. The total price is usually the same (the headache price may be lower, but often the amount of control is also).

Again it seems you are arguing semantics. If you think that it would be fairer to tax employers for hiring the services of an employer, just like any other service, then that’s fine with me.

 

[freeRadical]

However, if, as free radical was advocating, you get rid of all income and business taxes and replace it with a consumption tax, then shouldn’t services be considered taxable in the same way as goods.

When a company hires a service to clean their business, why is that different then hiring a person as an employee to clean the building? The company treats either as business expenses. They just book it under different classifications. Of course, when they hire a service, they can say that they’ve lowered their employee costs. The total price is usually the same (the headache price may be lower, but often the amount of control is also).

And yes, the employee is giving ‘pleasure and enjoyment’ to the employer. The employer wanted a job done. The job was done, so the employer is benefiting, so they are paying for that benefit. They didn’t have to do the work themself. They are enjoying the ability to do something else.

While we don’t always think of services as being goods, they aren’t as obviously tangible as, say an orange is, we are told to sell ourselves to prospective employers. Treat yourself like a product, market yourself.

Okay, it looks like I am going to have to go into a little more detail then I thought, as I assumed you read the articles I gave you. Consumption taxes don’t separate out the services employees provide to employers and tax them separately. They are captured under the consumption tax, usually through a Value Added Tax (VAT). An employee adds value to a product and this value is taxed under a VAT.

en.wikipedia.org/wiki/Value-added_tax

I don’t like the VAT because it is incredibly efficient and once government finds this out they usually raise it. The UK has a VAT tax and it has been raised significantly since it was introduced.

Employee services could also be captured under a sales tax. The point is that employee services add to the value, and thus the price, of the product and, as such, this is captured under a consumption tax. There is no need to separate them out and tax them directly, they are taxed indirectly.

 

[LeafByNiggle]

If a person owns land and can’t afford to pay a land value tax, what makes you think they have the ability to pay a property tax? In case of a piece of land with a home on it, the property tax would be higher then the land value tax.

Right. The same objection applies to property tax. This is not to say that there should be no property tax or unimproved land tax. Just that relying solely on that to fund the government might introduce some unintended distortions into people’s economic decision-making process. Of course any tax has the potential to introduce some kind of distortion, which is why tax policy is such a tricky balancing act.

Why is an income tax fairer then a consumption tax? Why is taxing income fair at all? It is an arbitrary tax based on income earned through labor. Most consumption taxes do have some sort of deduction built in just like income taxes do.

The reason is that consumption does not correlate as well with ability to pay as income or wealth. If consumption includes food, clothing, and shelter, then consumption tax becomes quite recessive, taxing those with the least ability to pay a proportionally higher fraction of what they have to pay with. If consumption were more qualified by excepting those items that are the least discretionary, then this problem could be mitigated. As for why taxing income is fair at all, I see no reason why it is any less fair than the alternatives.

Taxing consumption does have one advantage - it discourages wasteful spending. And I see that taxing the value of land might have a role too. If someone is sitting on a valuable piece of land and not doing anything with it, he is in some sense a poor steward of a resource that God gave us. So if he has to sell it because of taxes, hopefully the land will fall into the hands of someone who will use it to greater benefit for himself and for others.

But both of these motives, as good as they are, must be used with care, which is why I would not want to rely solely on these two taxes for everything.

 

[freeRadical]

Right. The same objection applies to property tax. This is not to say that there should be no property tax or unimproved land tax. Just that relying solely on that to fund the government might introduce some unintended distortions into people’s economic decision-making process. Of course any tax has the potential to introduce some kind of distortion, which is why tax policy is such a tricky balancing act.

Most of your local public services are paid for by property taxes. Very little federal income taxes go toward local public services, they mostly go toward transfer payments. I support subsidiarity. Taxes should go to the lowest government level and be spent by the lowest government level possible. It is much easier for a community to control how their local government spends taxes and what public services they provide then it is to control the federal government. Seeing as most public services are funded by a property tax anyway, I don’t see any problem in funding public services through a land value tax. Governments would just have to be more careful about how they spend taxpayer’s money. I don’t see how that is a bad thing.

The reason is that consumption does not correlate as well with ability to pay as income or wealth. If consumption includes food, clothing, and shelter, then consumption tax becomes quite recessive, taxing those with the least ability to pay a proportionally higher fraction of what they have to pay with. If consumption were more qualified by excepting those items that are the least discretionary, then this problem could be mitigated. As for why taxing income is fair at all, I see no reason why it is any less fair than the alternatives.

I don’t see why “ability to pay” should have anything to do with taxes. Taxes are supposed to fund public services that people benefit from. Economists usually refer to this as a tax-benefit linkage. Just because some with a higher income has more money to spend on taxes doesn’t justify that they should, unless you can show that someone with a higher income benefits more from public services. It is very easy to have deductions in consumption taxes just like with income taxes. Most consumption tax schemes I have seen include a minimum level deduction where there is no taxation below a minimum level. I see no justification in taxing income, it is arbitrary.

Taxing consumption does have one advantage - it discourages wasteful spending. And I see that taxing the value of land might have a role too. If someone is sitting on a valuable piece of land and not doing anything with it, he is in some sense a poor steward of a resource that God gave us. So if he has to sell it because of taxes, hopefully the land will fall into the hands of someone who will use it to greater benefit for himself and for others.

The major advantage of taxing consumption is that it does not tax investment, which income tax does. That is the main argument for consumption taxes instead of income taxes. The purpose of a land value tax is that the land belongs to the community and it benefits from public services, such as police and fire protection, thus, a person is “renting” the land from the community and benefiting from its public services so that person should have to pay the community for it.

But both of these motives, as good as they are, must be used with care, which is why I would not want to rely solely on these two taxes for everything.

We could fund the government just as easily with these two taxes as we could with a income tax.

 

[LeafByNiggle]

Most of your local public services are paid for by property taxes. Very little federal income taxes go toward local public services, they mostly go toward transfer payments. I support subsidiarity…

The fact that property tax is levied by local authorities and income tax is mostly levied by the federal government is an issue of implementation, not of principle. In principle, there is no reason why there could not be a federal property tax and no reason why a city could not levy an income tax. Some do, as a matter of fact. When you brought up land tax and income tax I thought you were referring to their attributes in principle, not the particular way they happen to be implemented today.

I don’t see why “ability to pay” should have anything to do with taxes. Taxes are supposed to fund public services that people benefit from. Economists usually refer to this as a tax-benefit linkage. Just because some with a higher income has more money to spend on taxes doesn’t justify that they should, unless you can show that someone with a higher income benefits more from public services.

Tax-benefit linkage is a good idea, but one that must also be used in moderation. If it is taken to the extreme then you get things like this: All roads become toll roads, since it would be unfair to tax people for road repairs if they do not drive a vehicle. All parks become funded by user fees, since it would be unfair to use tax money from people who do not visit the parks. “Public” schools would be funded entirely by tuition, since it would be unfair for people to pay for schools if they have no kids in school. The air traffic control system would be funded by user fees (as it is in Europe, where a private pilot is charged for every contact he makes with air traffic control).

The major advantage of taxing consumption is that it does not tax investment, which income tax does. That is the main argument for consumption taxes instead of income taxes.

That is no different than saying that the major advantage of taxing consumption is that is does not tax income. But until you prove that taxing income is unfair, the argument for consumption taxes has no support.

The purpose of a land value tax is that the land belongs to the community and it benefits from public services, such as police and fire protection, thus, a person is “renting” the land from the community and benefiting from its public services so that person should have to pay the community for it.

That reminds me, under tax-benefit linkage taken to the extreme, all police and fire protection services would also be funded by user fees. If police catch a burglar in your home, you will owe the police a big bill (tax). Same thing if your house is saved from fire. After all, it would be unfair to make people pay for police and fire protection if their house never burns and if they were never burglarized.

 

[freeRadical]

The fact that property tax is levied by local authorities and income tax is mostly levied by the federal government is an issue of implementation, not of principle. In principle, there is no reason why there could not be a federal property tax and no reason why a city could not levy an income tax. Some do, as a matter of fact. When you brought up land tax and income tax I thought you were referring to their attributes in principle, not the particular way they happen to be implemented today.

There is a difference of principle when property taxes pay for services that people benefit from and income taxes mostly go toward transfer payments.

Tax-benefit linkage is a good idea, but one that must also be used in moderation. If it is taken to the extreme then you get things like this: All roads become toll roads, since it would be unfair to tax people for road repairs if they do not drive a vehicle. All parks become funded by user fees, since it would be unfair to use tax money from people who do not visit the parks. “Public” schools would be funded entirely by tuition, since it would be unfair for people to pay for schools if they have no kids in school. The air traffic control system would be funded by user fees (as it is in Europe, where a private pilot is charged for every contact he makes with air traffic control).

Roads are paid for by the gas tax, a consumption tax. So if you do not own a vehicle, and thus you do not buy gas, you do not pay for the roads anyway. Public schools are funded by property taxes, so they would still be funded by a land value tax.

You bring up something to consider though. Should someone who has no kids in public schools still have to pay for public schools? Should someone who never utilized public parks still have to pay for them? Should someone who doesn’t use air transportation still have to pay for the air traffic control system?

That is no different than saying that the major advantage of taxing consumption is that is does not tax income. But until you prove that taxing income is unfair, the argument for consumption taxes has no support.

It is different but I don’t expect you to believe that. Until you prove taxing income is fair, your argument for taxing income has no support.

That reminds me, under tax-benefit linkage taken to the extreme, all police and fire protection services would also be funded by user fees. If police catch a burglar in your home, you will owe the police a big bill (tax). Same thing if your house is saved from fire. After all, it would be unfair to make people pay for police and fire protection if their house never burns and if they were never burglarized.

People benefit from police and fire presence even if they don’t “utilize” them. Your taxes pay for a police presence which one could argue deters crime and allows them to respond in a timely manner. The same with fire protection.

 

[on_the_hill]

I have my doubts.

Without getting into Economics (capital E), it might be more convenient to look at when the great surges in the standard of living (at least in the U.S.) occurred. In other words, from a History (capital H) perspective. Graph the highs and lows with what was going on the world.

The Industrial Revolution? Yes and no. On the one hand, the U.S. people benefited tremendously from the advances bankrolled by Captains of Industry/Robber Barons. On the other hand, generations of individual people suffered tremendously from the dangerous working conditions, pollution, squalor, etc. that came with the advances.

The post-WWI boom raised all boats, until the Captains of Industry/Robber Barons bankrupted everyone, including themselves with the Great Depression.

Did Reagan Economic trickle-down policies create the booms of the 80s and 90s? Or did the policies happily coincide with the prime of Steve Jobs, Bill Gates, Michael Dell, etc?

 

[sallybutler]

Roads are paid for by the gas tax, a consumption tax. So if you do not own a vehicle, and thus you do not buy gas, you do not pay for the roads anyway.

So are you saying that when a company that transports things and buys gas and pays the gas tax do not pass that on to their customers? The only way you are affected by the gas tax is if you directly buy gas?