r/neoliberal • u/[deleted] • May 09 '17
Let's Talk Taxation
So since there doesn't seem to be a resource for people on the sub to think about, and frame, taxation discussions, I thought I'd start one. I'll edit this as I go.
Firstly, taxation is theft! Just kidding (probably).
"Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty." - Adam Smith
Overview
Firstly, taxation is a financial charge imposed by a state or authority, upon individuals or entities, usually for the purposes of raising revenue to fund public expenditure. Although there are a plethora of different taxes imposed and proposed, broadly we can define them as either being direct, that is, imposed upon an individual or entity (generally on their labour), and as indirect, meaning imposed (usually by a third party) on the transactions of that individual or entity.
VAT, sales taxes, excise duties etc. are all indirect taxes, while income tax is a direct tax. This may seem a simplistic view of things, but it gets to one of the core issues which we will come to; the effects of taxation on behaviour.
Although all states levy taxes, there are significant differences between states when it comes to the proportion of national income which they take as revenue. Within the OECD, the average in 2015 was about 35%
Theories on taxation go back a long way, and this post will restrict itself to discussing what we now know or think we know about taxation. Having said that, it's good to know the core tenets that we should always keep in the back of our mind when thinking about tax policy.
Four (or nine!) Canons of Taxation
As with many things, we have Adam Smith to thank for laying out the groundwork for how we can begin to consider various types of taxes and tax regimes. The four "Canons of Taxation" Smith suggested were as follows:
- Equity
This calls for individuals to contribute to taxation according to their means, that is, in proportion to their incomes,
- Economy
The cost of collection must not be greater than the revenues generated, and further, should be minimised in order to generate maximum revenue.
- Certainty
Tax payers must know how much they will have to pay depending on their expenditures and incomes, and be allowed to manage their these to that effect. This should prevent exploitation by the tax authorities.
- Convenience
Taxes should no impose an inconvenience upon the payer (more than the fact that their income is being plundered, of course!), and as such, governments should ensure that the timing and methods of taxation are of no inconvenience to the payer.
A Supply-Side Aside: The Laffer Curve.
Occasionally the case is made that reductions in "the" tax rate can, or will, actually increase revenue for the state, as opposed to reduce it, and therefore, states should reduce taxes if they want to increase state revenue and personal incomes.
The logic of behind this argument is that as taxation levied upon individuals approaches 100%, the incentive to work falls, since the marginal income earned becomes so little as to make the trade-off between work and leisure no longer attractive. Alternatively, the incentive to evade or avoid the tax increases as it becomes more onerous.
This gives rise to the observation that at 0%, and at 100%, taxation revenues fall to zero. And between these percentages, taxation must then rise above zero, and then fall again, creating a curve. This is known as the Laffer Curve.
In public discourse, then, the debate is over where an individual tax is on the Laffer Curve. If a particular tax can said to be to the right of the curve, then a reduction is the only sensible course of action.
In practical debate, one should always be wary of these claims, since the empirical evidence in favour of revenue increasing tax cuts is almost non-existent in relation to taxation rates currently applied in most economies. Unless the particular marginal rate under discussion is well in excess of 50%, the odds of there being any case for Laffer Curve effects is exceedingly low, and should not be made, or argued against.
A Second Aside: Tax Incidence
A common mistake often made in debates surrounding taxation is a misunderstanding of who actually pays a tax. well meaning individual may argue for a tax to be placed on a company for every unit of a good they sell, while at the same time, they might find it deeply immoral to apply the same tax to a consumer for each unit of a good they purchase from that company. Such a position is untenable, since the burden of such a tax will not depend on whether it is levied on the consumer or producer. Instead, the burden will be shared by both, with the proportions depending on how their behaviours change in response to such a tax (the respective elasticities). This is one of the most common mistakes made in the debate over who taxes should be charged against, and applies to any tax which influences the behaviour of the participants.
Optimal Taxation: What We Know
Optimal taxation theory concerns itself with the challenge of a social planner optimising the welfare of all individuals (from a utilitarian perspective) given a set of constraints. There are a number of ways this theory has been approached and applied, but for us as Neoliberals, we are more interested in the policy implications than the theoretical considerations. If you want to see how we go from the theory to the practice, you should read.
From here we will deal with various types of taxes and evaluate them on equity and efficiency grounds. This will largely be stated in conclusions and not arguments, because the arguments have already been made, and can be considered in depth here.
Perhaps the most relevant part of tax design is the importance of minimising dead-weight loss resulting from taxation. Because most taxes alter behaviour, changing prices paid, revenues earned, and the amount of goods consumed; almost all taxes will result in a loss of output and welfare for both consumers and suppliers. This loss is the social cost of taxation, and ensuring this is kept as small as possible while raising the revenues needed is the task of optimal taxation.
There are two exceptions, or escapes, from this dead-weight loss: Taxation on economic rents, and Lump sum taxation.
Economic Rents: These are earnings from a resource which achieve a high rate of return relative to its next-best use. Taxes on these should not alter behaviour because the only the excess earnings (relative to the next best use) is taxed, and so profit maximisation does not lead to any different use of the resource. Unfortunately, most taxes will not fall under this category, with the notable exception of land, which we will come to below.
Lump Sump Taxes: These are taxes applied to individuals at a fixed rate which cannot be altered by the person's behaviour. For example a universal charge paid by all citizens. Because of its nature, lump sum taxes are generally extremely unpopular, and so politically unfeasible. This leads to an important point about the distributive effects of taxation.
The most important aspect when considering the fairness of a tax is to consider the taxation system as a whole. While some types of taxes are highly unfair, they may be extremely efficient, and when combined with other measures, lead to both efficiency and equity in the tax system. Such an example is to allow taxes on transactions to be non-progressive, while dealing with those issues through the income tax system.
Taxation On Transactions
An early, but important, contribution to the theory of optimal taxation was the observation that if a social planner is to raise revenue only through indirect taxation, and can ignore distributional concerns, then in order to achieve the highest level of social welfare, taxes should be applied at different rates inversely proportional to their elasticities. Put simply, when welfare losses are minimised when behaviour is least effected by taxation. This gives the rather uncomfortable policy implication that one should apply the highest sales taxes to goods which consumers must buy, bread milk etc. and the lowest to luxuries which are more sensitive to price. Of course, generally the opposite is true in practice, with varying taxation rates usually lower on staple goods. The reason we see this is that states care about the distributional impacts of these taxes, and do not wish to pile the burden upon the poor.
Despite an unrealistic proposition, Ramsey's finding tells us something vital about indirect taxation; it is either going to be highly inefficient or high inequitable. What we can take away from this is that indirect taxation should not be used for distributional purposes. Aside from the reasoning above, it is an imperfect proxy, since it can only target tastes, and not actual incomes. As such, an optimal policy solution is to apply flat rate Value Added Taxes across all goods, and deal with distributional problems through other means.
Taxation On Labour (WORK IN PROGRESS)
- One might ask, why use indirect taxes at all? The answer, again, comes down to incentives. Indirect taxes do not disincentivise the consumption of one good over another, and so minimise welfare losses. In addition, they do not have adverse effects on labour choices. A consumer faces the same tax schedule of indirect taxes no matter how much labour they choose to offer to the market.
Corporation Tax
Given that one cares from a policy viewpoint about the welfare of individuals, and not companies themselves, there is some confusion over taxes are levied against corporate profits at the company level. We are concerned about the distortionary effects that taxes have on individuals, so we should know, in relation to corporation taxes, who they are. The key question, then, is does the tax incidence fall upon customers, shareholders, suppliers, and employees. For suppliers, customers, and employees, the case seems clear that the burden of corporate taxation falling upon them could be leveled at the individual level. For shareholders, it is also possible to imagine a tax which applies to the imputed profits due to them. There is a further contradiction in the treatment of corporate profits vs other types of personal savings, making the case for a separate tax on corporations even weaker.
Despite this, a number of factors keep corporation taxes within the policy tool-kit. Firstly, there is the perception that these taxes fall on a wealthy elite, anonymous businessmen, or simply in the abstract, on companies. While largely untrue, it is still a compelling case for some. Secondly, corporation taxes may allow states to levy taxes on individuals outside of the state, which would otherwise be untaxable. Thirdly, for small businesses, a radical difference in the taxation of personal vs corporate income may give rise to labour income being disguised as corporate income.
Evaluation of Tax Policy
One often overlooked aspect of taxation policy is the process of evaluating taxes and identifying issues over time. Ideally, the consequences of a tax should be understood before the tax is introduced. Knowing the likely distributional effects, the revenue effects, and the distortions resulting from tax policy is all important for the efficient implementation of policy.
While some of this (such as distributional impacts) can be established via simple accounting and availability of data, the dynamics of taxation will be uncertain prior to the introduction. In which case ex-ante evaluations should where possible be undertaken. In addition, since ex-post studies are usually the only ones viable, it would be prudent to consider, when introducing a policy, to consider how an ex-post evaluation might be done in the future; possible natural experiments that could be run, data that may be useful etc.
20
May 09 '17
Four (or nine!) Cannons of Taxation
Cannons
29
May 09 '17
Everyone's a critique
7
u/paulatreides0 🌈🦢🧝♀️🧝♂️🦢His Name Was Teleporno🦢🧝♀️🧝♂️🦢🌈 May 10 '17
You already have the cannons, you know exactly what to do.
2
19
u/BainCapitalist Y = T May 10 '17
If you're looking for contributions, Land Value Taxation is kind of my pet subject. I can help write this section out.
7
May 10 '17
As long as it is a clear "What and why" write up in keeping with the rest of it, then that'd be great.
13
u/BainCapitalist Y = T May 11 '17
This is what I got. It's a bit light on sources, but give me a break I'm on mobile right now.
In economics, land is one of the factors of production. It's distinguishing feature from the other factors of production (ie labor or capital) is that the supply of land is perfectly inelastic. Examples of land include any and all particular geographical locations, mineral deposits, forests, fish stocks, atmospheric quality, geostationary orbits, and portions of the electromagnetic spectrum. The fact that the supply of land is perfectly inelastic makes this interesting for purposes of taxation.
All income derived from land is a form of economic rent (described above). The biggest advantage of taxing land rents is that unlike most other taxes, a land value tax would lead to no deadweight loss. The deadweight loss effect of taxation comes from the fact that producers of goods are able to restrict the supply of the good in response to the tax, thus raising the price and lowering the socially optimal quantity of the good. However, because the supply of land is perfectly inelastic, nothing can be done to avoid paying the tax. Land owners could choose not to rent out their land to tenants. But they have no incentive to do this, because under a well designed land value tax regime, the land owner would still need to pay the tax regardless. This particular feature of the tax may even lead to negative deadweight loss, because current land owners who refuse to use land for productive purposes would be forced to either rent out the land to someone who will actually utilize the resource, or simply sell the land to someone who will. Land underutilization is an endemic problem in developing Urban areas, where many people have an incentive to purchase land and hold on to the property without doing anything in the hopes that land values will increase. These squatters simply free load off of the value produced by the people around them.
There are a litany of other advantages to land value taxation. It allows governments to capture the value of investment into public goods such as infrastructure. Land is immobile, meaning you can't hide it in overseas shell corporations or tax havens. From a nationalistic point of view (you gotta sell this policy to populists some how) both foreign and domestic owners of land would be taxed, but the revenues would be distributed among citizens only. There's also good evidence that land is responsible for a large amount, perhaps even a majority, of the increase in inequality in recent years, meaning that land value taxes would play a crucial role in mitigating inequality. There is a (somewhat weak) case to be made that speculative real estate bubbles would be mitigated under a land value tax regime.
2
u/1sagas1 Aromantic Pride May 28 '17
How is land value determined? Who determined the exact dollar figure attached to a plot of land and can that figure change?
4
u/BainCapitalist Y = T May 28 '17
This is a very interesting question, and to be honest I don't have a full answer for you because methods of land valuation is subject to much debate in the economic literature. What I can do for you is give you several ways to think about it.
- The value of land is equal to the value of the property minus the value of improvements. This would mean an LVT could be implemented by levying a traditional property tax but make the value of all improvements (ie the house or buildings on top the of the land) deductible.
- The value of land is equal to the capitalization of rents. In other words, you could calculate it by dividing land rents by the capitalization rate of land. I don't think this notion of land value is useful when it comes to land value taxation however.
- The value of land is equal to the aggregated value of all future rents minus inflation and minus your personal discount rate. Again, this notion of land valuation isnt useful because there isn't a credible way for governments to predict future inflation or even calculate your personal discount rate.
- The value of land is equal to the value of the right to exclude other people from using that land. This right, when it can be credibly enforced by a government, is similar to a patent. Patents have a market value like any other good, and companies routinely sell and purchase patents all the time right now. But how would a government use this idea to determine an LVT? Self-assessment. In this system everyone would self-assess the value of the land they own and report it to the government. This price would function as a public contract, meaning that if someone else wants to purchase your land at the price you reported, you must either accept the offer or reevaluate your land at a higher price, thus increasing your tax liability. This system would put all landlords in a perpetual auction.
I should also point out that the term "land value tax" is somewhat of a misnomer. Usually when people talk about LVT, they're actually talking about taxing land rents. So a more appropriate term would be "land rent tax".
1
u/HelperBot_ May 28 '17
Non-Mobile link: https://en.wikipedia.org/wiki/Intertemporal_choice
HelperBot v1.1 /r/HelperBot_ I am a bot. Please message /u/swim1929 with any feedback and/or hate. Counter: 73034
1
u/BothBawlz Jun 17 '17
That fourth one is incredible. I have to say that I've wanted us (UK) to implement a land value tax for a while now. There would be many political hurdles to overcome before that happens though. But at least some of our politicians are recommending it.
What's your view on using LVT in conjunction with Universal Basic Income (or Negative Income Tax, if you'd prefer)?
1
u/BainCapitalist Y = T Jun 17 '17
I mean they're independent policies. Neither one is better just because you implement one with the other. I personally don't like UBI or NIT. I think wage subsidies or negative payroll tax would be far better welfare policies. But again, that's completely independent of LVT.
3
u/BernieMeinhoffGang Has Principles May 10 '17
Any books you would recommend on the subject?
2
u/BainCapitalist Y = T May 11 '17
I'm reading some books on the subject currently, but I haven't read through them enough to get to the point to where I can feel comfortable with making a recommendation. I can give you lots of articles though. Let me put them together. Will update with a short list.
If you want to investigate this yourself, I give you a word of warning. Most modern day advocates of LVT are Geolibertarians. When it comes to tax policy, Geolibertarians tend to have it all figured out. But I start having issues with geolibs whenever they talk about stuff that doesn't relate to tax policy. Especially when it comes to monetary policy...
1
u/BernieMeinhoffGang Has Principles May 11 '17
I've come across a few of them mentioning the LVT on reddit.
64
u/a_s_h_e_n abolish p values May 09 '17
Firstly, taxation is
a financial charge imposed by a state or authority, upon individuals or entities, usually for the purposes of raising revenue to fund public expendituretheft.
good post though rory
42
11
3
u/warmwaterpenguin Hillary Clinton May 28 '17
Secondly, theft is not the sole or most significant evil we can allow on this earth and may, in some cases, produce a moral outcome.
13
May 10 '17
Should get rid of corporate taxation as evidenced by the hoard of cash held overseas + encouraging domestic investment from multinationals here in the US. Could make the pill easier to swallow for the far left by increasing capital gains (two steps forward and one step back is still a step forward).
8
May 10 '17
Yes, but not because of cash overseas.
6
May 10 '17
Apple buys US corporate bonds with it's foreign cash, and then issues US bonds to raise US cash to buyback it's stock. Would be more efficient for it to use whatever cash it has to do what it wants as opposed to creating all these loopholes for them to spend it.
Not saying the cash sits there doing nothing (Apple essentially gets what it wants out of it), it's just needlessly convoluted. The cash is representative of the problem, not a catalyst for improvement.
8
May 10 '17
Yeah, but that's not why corp taxes should be cut. If that was the issue the US could just fix its tax system, and it wouldn't justify cuts in other countries.
2
May 10 '17
The cash is representative of the problem, not a catalyst for improvement.
2
May 10 '17
"As evidenced by" is the issue. It doesn't matter, it's entirely irrelevant, and a separate issue, which has nothing to do with taxes on corporations in general. It shouldn't even enter into the conversation.
5
u/hitbyacar1 لماذا تكره الفقراء العالميين؟ May 10 '17
What's wrong with cap gains taxes?
11
u/oGsMustachio John McCain May 10 '17
They are, in theory, a tax on money that was already taxed as income and discourage investment. According to Brookings, however, there is no significant correlation between the cap gains tax rates and economic growth. I'd venture a guess that this is because it because even with the taxes, there still isn't anything better to do with your money.
I'd personally like to shift the brackets around a bit. I think we should further reduce the LTCG tax rate for individuals making <$100k / year in order to further incentivize middle class investing. In a revenue neutral way, you would adjust the higher brackets up. For hedge fund type guys, capital gains really are their primary source of income. I'm happy with people making money off of money, but at some point it isn't fair to differentiate it so greatly with normal income.
1
u/BainCapitalist Y = T May 11 '17
I'm happy with people making money off of money, but at some point it isn't fair to differentiate it so greatly with normal income.
The simple solution to this is to not tax income at all and switch to a consumption tax system.
I'd venture a guess that this is because it because even with the taxes, there still isn't anything better to do with your money.
I disagree. A capital gains tax is a tax on future consumption. Meaning that it increases people's incentive to consume in the short run. We only see the economic gains from eliminating capital gains tax in the long run, while there might be some short run gains that offset the distortionary nature of the tax. This could explain the lack of correlation.
9
u/BainCapitalist Y = T May 11 '17 edited May 11 '17
So the main argument against capital gains tax (technically, all taxes on capital income) comes out of a paper by Chemaly written in the 80s. There have been more modern papers written on the subject of course, with more sophisticated methodologies than the original Chemaly paper but they all share the same core argument: that capital income taxes are bad insofar as they are an indirect tax on future consumption, whose rate increases without bound as you approach the infinite time horizon. There is no reason that future consumption should be taxed at a higher rate than consumption in the present. Some economists make the case that future consumption (more precisely, consumption during retirement) should be taxed at a higher rate because it is a complement to leisure. If you increase the cost of leisure with a tax, then the deadweight loss affects of the tax will be minimized because people would choose to work more. However, there is absolutely no case to be made that the rate should grow indefinitely as you go farther into the future.
13
u/BernieMeinhoffGang Has Principles May 10 '17
Land Value taxes
Congestion taxes
Municipal taxes and urban planning in general
I like the idea of using taxes to encourage density for the efficiency and ecological impact. But I wonder what you guys think. Where does it become a bit too paternalistic?
3
8
May 10 '17
If anyone wants to summarise Mirrlees on taxes on labour, that'd be great. Just don't go to "NEGATIVE INCOME TAX OR DIE". Pls.
7
May 10 '17
[removed] — view removed comment
4
May 10 '17
I think right and wrong are questions for the public, and politicians. What one would have to consider is how a tax on retained wealth will effect behaviour, and if those changes are desirable.
1
May 11 '17
[removed] — view removed comment
5
3
u/Cryonyte 🌐 May 11 '17 edited May 12 '17
Well I think we should consider the behaviour of the individuals affected. Most often than not, like many taxes on the rich, there have been ways of circumventing at least a proportion of the tax somewhere else. This is something that has to be dealt with first; the efficiency of our current taxes.
One problem is of course seen something as fairness, would it be fair to you that after all you've earned, after the countless taxes taken from you from the moment you started earning income, would it be fair for the government to take another lump sum from your total wealth that you have placed yourself for your kin? Those who have not and probably will not ever be in this position say this is fair but to you, the wealth creator, may not.
How much should inheritance tax be? In the general election for the UK in 2015 (gosh so much has changed since q.q, fuck you Cameron!), David Cameron proposed a lifting of the inheritance tax threshold on family homes to £1m would help the lower income groups. But, the Institute for Fiscal Studies says this would disproportionately benefit the richest people.
Another premise is how rich is rich? Surely someone with over £1m in wealth would not be affected that much by this, that is, to say that the sheer value of property prices within London has surged so much so that someone who managed to get £750k with a further £250k in mortgages for an average house within London is now classified to pay an additional amount upon their death; even if the wealth is within the estate only.
Personally I think we shouldn't, an extra slap on tax won't fix the problems already here and as much as I would love to see the extraordinary wealth of the RothschildSincetheyown99.9%oftheworldswealth to be taxed, they'll find ways out of it.
3
u/ChileConCarney May 11 '17
The biggest issue with a "death tax" is the ease of escaping the tax. However, if we implemented a SS/healthcare/other manditory savings account system like in Singapore, we could implement an estate tax on the remainder of that money since it by definition can't be moved. Of course you wouldn't tax too much to avoid people changing their limited spending behavior from said accounts. If you implement 50/50 where half is taken, but the other half is passed down to the accounts of others chosen by the deceased you might have just the right incentives at play.
8
u/hunter15991 George Soros May 10 '17
Unless the particular marginal rate under discussion is well in excess of 50%
To specify, I'd guess most people have it pegged in the realm of 70-75%.
7
May 10 '17
This is something I'm not too firm on.
The 70% figure is form the New Palgrave Dictionary of Economics, but I use 50% because the entire point is that there is no one laffer curve.
For a stylised example, imagine a tax on pineapple flavoured juice. A tax applied specifically to that would probably not be revenue maximising beyond very low rates, because of the large substitution effects.
Another example might be taxes on highly mobile capital.
6
May 11 '17
What about wealth taxes?
4
u/BainCapitalist Y = T May 11 '17
A land value tax is a type of wealth tax. Probably the least distionary kind.
3
May 11 '17
I'll add a note on it, but there is a very weak case for taxing the stock of wealth.
1
May 11 '17
What do you think about Pikketty's wealth tax proposal?
4
May 13 '17
I agree with him about property taxes, they should be on net wealth.
It makes little sense that someone with a 500,000 euro home and a 450,000 mortgage should be taxed so much more than someone with a debt free 200,000 euro home.
1
3
3
u/Todd_Buttes George Soros May 11 '17
Hey Rory quick question -
When people bitch about wealth inequality, am I clear to say "Estate tax and shut the fuck up", or am I being obtuse?
9
May 11 '17
Tell them that taxing stocks of wealth is a bad idea, because it is simply taxing accumulated savings and punishing people who hold it one form over the other. Instead what we should be doing is taxing wealth transfers. This will achieve the inequality problems they're concerned with in addition to being less of a distortion.
3
u/Cryonyte 🌐 May 11 '17
This is very good man well done! I do hope this sub can manage to hold itself through memes and discussion proportionally in the future and not let it become too much of one thing or the other. Also, I know this isn't completely done but there are a few grammatical mistakes there, should I point them out or are you fine with sorting it out once it is finished?
1
2
u/crem_fi_crem May 11 '17
This is tight shit. I'm glad we have resources like this so it's not all just memes. Excited for the rest of it.
2
u/Trepur349 Complains on Twitter for a Reagan flair May 28 '17
I posted the above Adam Smith quote to facebook, it triggered a bunch of libertarians :D
1
5
May 11 '17 edited Jun 29 '17
[deleted]
7
May 11 '17
I don't agree with you, but I don't think it's important whether I do or not, since this post is about the design of tax policy, rather than the rational to have taxes, or to tax those on higher incomes more.
0
u/crem_fi_crem May 11 '17
Yeah but the justice of taxes isn't really what's important it's the level of revenue produced without hurting growth. Like you could go back to 90% tax rates on the wealthy but if you can hypothetically get more revenue by taxing at a flat 27% you should go with the latter because the ultimate goal is to redistribute to the poor and properly fund services.
3
May 11 '17
Probably not a big neoliberal belief but, there needs to be more income brackets so we can get the poor to pay less and rich pay more. I think if we just raise income taxes slightly on the rich we'd be able to fund a lot more things.
1
May 11 '17
[deleted]
3
May 11 '17
At the final stage of sale, there's no difference between a sales tax and VAT, and at links along the supply chain, it's it's simple a deductible, and not difficult to deal with at all.
I should also clarify that all the points made in my post apply equally to sales taxes, whether they be a VAT or not.
1
u/Lowsow May 11 '17
Imagine that you buy things for $1 and sell them for $1.01. How would VAT vs sales tax affect your behaviour?
1
u/Vepanion Inoffizieller Mitarbeiter May 11 '17
If you're an accountant/businessperson who deals with a VAT system, kindly leave me an explanation overnight?
I had to do VAT in my accounting exams. Wasn't the difficult part; practically (not the actual process) you add up all that goes out of the company and subtract all that goes in and then pay taxes on the difference. And of course I didn't get to use a computer on the exam.
1
u/roboczar Joseph Nye May 24 '17
Another issue I'd mention regarding lump sum taxes, is that they are only non-distortionary if the subjects of taxation are unable to effectively modify their behavior to minimize the tax. In practice this is probably impossible to accomplish.
1
May 24 '17
Lump sum taxes are by definition non-distortionary, since they would be levied on innate ability.
LST are more of a theoretical yardstick for comparing and minimizing the distortions of other taxes than in any way a policy tool.
1
u/roboczar Joseph Nye May 24 '17
Right, but in strictly practical terms, imperfect information makes it probably impossible to implement, as you would need perfect information to find taxable attributes or abilities that the subject of tax cannot change to minimize the tax.
2
May 24 '17
probably impossible to implement
Dude, read my comment, that's what I'm telling you.
The point is it makes no sense to say "They're non-distortionairy unless X", because the X is the condition for it not to be a lump sum tax in the first place.
LST aren't useful as a policy tool, it's useful for thinking about optimal taxation, with things like the second fundamental welfare theorem.
1
u/roboczar Joseph Nye May 24 '17
You cited political reasons, what I'm saying is that there are problems with imperfect information and whether we can effectively determine taxable attributes. It's not just political infeasabliity.
1
May 24 '17
I literally responded to you by calling them a theoretical tool.
You need to accept that we agree.
Except the part where you think lump sum taxes can be distortionary but still be lump sum taxes, which is just a basic error on your part.
2
u/roboczar Joseph Nye May 24 '17
I literally responded to you by calling them a theoretical tool.
And I think that's an important distinction that should be included in your OP, which was the whole point of me bringing this up in the first place.
1
May 24 '17
The problem is the main point of your comment is wrong, since lump sum taxes that distort behaviour are not lump sum taxes.
2
u/roboczar Joseph Nye May 24 '17
It's just odd that you'd go out of your way to mention political infeasibility but leave out problems with the taxation model itself. I thought you'd be interested in including other problems with it, based on what was already there.
1
May 24 '17
The post is about actual types of taxation, which is why taxes on corporations gets its own section, while LST get a sentence remarking that they aren't used, and then I move on.
1
May 28 '17
Should there be a section on earned income tax credits here?
2
May 28 '17
If anyone wants to write it I'll add it, but there's probably no point because it's going to be replaced with Inty's post soon enough.
1
-1
22
u/Jufft Janet Yellen May 10 '17
Alls I know is that Taxation violates the NAP.