Tuesday, April 26, 2011

Links on the rich, taxes, education 11-04-26

Here are some links:


Progressive taxes are unfair?


James Kroeger's comments offer an interesting argument: The rich are no richer even though they're richer. Because they're richer they drive the price of everything rich people like up, so there's no real gain in it for them. He argues therefore, that a (proper) progressive system, without loopholes, doesn't change the actual purchasing power of anybody. I don't think it is quite true, because the flip side of the argument is the poor are no poorer even though they're poorer. Because they're poorer the price of everything they need goes down, so there's no real loss to them. Mmm... Something else is going on... Still, worth the read.

This is a review of Hacker and Pierson’s book “Winner-Take-All Politics”


Here’s a fun little tax toy, but not to be taken too seriously, as nobody who makes $10 Million pays 36.3% of his income on taxes. (As we have shown elsewhere, http://anamecon.blogspot.com/2010/10/what-income-of-top-1-means-to-rest-of.html the rich pay on average about 17%.)


This is a piece on the financial problems besetting the nation’s public universities, particularly discussing the University of California.


Part of the problem here, which I mentioned somewhere else, is the equalization of factor prices due to free trade, which eventually propagates throughout an entire economy. However, those sectors of an economy more exposed to international competition ‘equalize’ faster, most labor in particular. This implies that those sectors more insulated from international competition rise relative to the exposed sectors. (The exposed sectors are, in real terms, declining. Since this does not appear so much nominally to be the case, a great deal must be accounted for by hidden inflation. We should not be surprised then, at the steady increase in gasoline prices.) This accounts for part of the relative rise in costs of public education in particular, and government in general, as the tax base is eroded by declining wages, which are converging to the wages of developing countries, like China.

How economists can consider this a good thing entirely escapes me. Well, not entirely. This also accounts for part of the relative rise in health care costs. It also helps account for some of the housing bubble, the price collapse due to lack of demand due to decreased earnings by labor.

Saturday, April 23, 2011

Who Really Pays Taxes

Steven Landsburg, at "thebigquestions.com" considers the issue of Mr. Robert Kendrick, who, though wealthy, does nothing but drive and park his four cars. Can Mr. Kendrick be taxed? Steven Landsburg says no. Many others say yes.

Mr. Landsburg is drawing a distinction between the nominal and the real. They are too often confused. Nominally, Mr. Kendrick can be taxed, and nominally everyone else is better off. However, Mr. Kendrick cannot be taxed of real resources, because he basically doesn't produce any, so nobody is really any better off. Good.

More generally, (really) only production can be taxed: All taxation is a transfer of production, goods and services, to the government. Consumption cannot (really) be taxed, since it is still a transfer of what is produced away from the consumer and to the government, which then consumes. Consumption can only nominally be taxed. For example, were we to tax Mr. Kendrick to such degree as to change his behavior, on the whole, there would still be no net improvement in the economy. Any real improvement in the rest of the world would be less than Mr. Kendrick's loss.

Further, (really) only consumption, demand, can be subsidized: All subsidy is a transfer of demand, that is, consumption of goods and services, from one producer to another, through the instrumentality of the government. Due to handling expenses, the subsidy is always less than corresponding tax, that is, on the whole, an economy is always, in the present, worse off for a subsidy. This is not to say a nominal subsidy need be useless. For example, when the subsidy goes to develop infrastructure, that is future production, an economy may be better off in the future.

Above xposted to:

To continue: An economy is a transfer of production to consumption, of producer to consumer. However, producers are also consumers, and must get back a certain percentage of their real production in order to survive and expand. The various mechanisms of an economy may prevent producers retaining this percentage, in which case, a nominal subsidy may be necessary to compensate. This combination of processes is, however, less efficient than just letting producers retain sufficient resources on their own account. For instance, labor, particularly low wage labor, is increasingly coming under subsidy, as eg earned income tax credit, and in the future, ‘universal health care.’ It is more efficient simply to arrange that they are paid more. However, this seems to be politically infeasible.

From the above, it should be clear that the real, or essential, tax base is much smaller than the nominal, or apparent, tax base. This is because most labor, and most industry are involved in activities which are essentially non-productive, in the most basic sense. The financial services sector, for instance, cannot really be taxed, because it produces nothing real. Government employees, for instance, cannot really be taxed. Neither can Calvin Klein or Brad Pitt. Or your neighborhood plumber. Unless the government directly uses their services, their production, and is not buying these services, the government is merely transferring other, more basic production, away from them and to itself. They are not part of its real tax base, however much a part of its nominal tax base they may be. The government, for instance, cannot really tax the military industrial complex. It can, and must, tax those industries whose production goes into sustaining that complex. The production of steel and coal and electricity can be taxed, but the production of a jet fighter engine cannot be. The engine is instead really paid for by the steel and coal and electricity and labor, and whatever else goes into it, that the government had collected as real tax. This is clear because what ever nominal taxes are charged to the jet engine will merely be added to the (nominal) bill the government pays for it.

So, are you really taxed, that is do you directly contribute to your government, or are you just nominally taxed, and your welfare reduced somewhat by the transfer of demand, and thus resources, away from you? Probably (mostly, if not all) the latter.

Thus your complaint is not that the government takes too much from you, since it takes nothing. It is merely that it does not allow you to keep for yourself as much of what others have produced as you would like.

--- Further consideration has led me to the conclusion that real assets can be taxed, since all real assets have previously been 'produced.' Thus, taxes on Mr. Kendrick's nominal wealth, which represents a demand on real wealth, would represent a real transfer of wealth from Mr. Kendrick to the government. However, Mr. Landsburg's point that the government spending this would leave everyone else a little worse off is still correct. But so too if Mr. Kendrick had just taken the money and spent it himself.

A point of MMT, however, if I have it correct, is that the purpose of taxes is not to raise revenue. The government can spend its currency as it wishes. (Nominal) taxes are to maintain a demand for that currency, and to destroy excess demand in that currency, that is, to maintain the value of that currency, ie fight inflation. According to MMT, then, the real cause of inflation is a lack of political will. ---

Monday, April 4, 2011

What is your citizenship worth?

What is your citizenship worth? A monetary value can be put on it. Is it still positive? Is it still worth something positive? Or has it become a burden? It is supposed to be a blessing.

Consider the negative value added to it by the national debt. At about $10Trillion or so, or about $33,000 for every man, woman and child, about $60,000 for every worker. And climbing. Taxes also take away from the value of citizenship, but with taxes, we buy things, and the value of these things adds to the value of citizenship. So add to that the benefits provided by society. Schools, highways, rule of law, etc. What should be a very significant net positive. Hard to put exact figures on them. Perhaps willingness to pay. Plus a premium. When you think about it, schools, law enforcenment, and many other public goods supported by our taxes, really are a bargain.

But in any case, citizenship is worth less than it was before, for most of us:

But not for some:

Not exactly the 'shining city on a hill' mentioned by Ronald Reagan. Not exactly an example for others to follow, either. With increasing debt, budget cuts to education and so forth, loss of rights in the workplace, etc, the value of citizenship seems to be decreasing. What will happen if, or when, the value turns negative, the bribes for obedience are no longer enough, and propaganda can no longer hide the fact that citizenship in the United States has, for many, becomes an increasingly onerous burden? Will they sell their citizenship to the highest bidder, by which I mean the rights citizenship confers? Piecemeal, perhaps? Or will the people organize, and reestablish a new citizenship, under new terms?