Thursday
The Economics of Taxation
After weeks of student near-begging, I decided that my Macro-Economics students would be allowed a second extra-credit assignment. The topic is one that is near and dear to me. But, I have an overly-romantic view of economics! Essentially, the assignment is a look at the constrictive effect that taxation has on an economy.
Taxation hits each participant in an economy in a variety of ways. For example, the study of tax incidence measures how buyers of a product are negatively affected by a tax on the seller. To what degree each are affected depends on a variety of factors. But, the fact remains that both are negatively affected regardless of where the tax is placed!
For years, Democrats have sold the American public up the river on the "benefit and painlessness" of corporate income taxes. The theory of the Deadweight Loss demonstrates the constriction that occurs in a market (essentially, the reduction in numbers of buyers and sellers that participate in the marketplace) by virtue of any tax placed upon either the buyer OR the seller of a good or service. There are natural inhibitors that are enacted when a tax is placed on a good or service in the marketplace. This is a fundamental of economics upon which nearly all economists agree.
Ronald Reagan drove down the corporate income tax rate from roughly 70% to approximately 20% during his time in the White House. The liberal media lambasted the idea claiming appeasement of the rich. The fact that federal tax revenue doubled during the same four years point to the expansive policy undertaken by President Reagan (my leftist friends will undoubtly insert ridiculous claims that this tax policy caused the budget deficits and federal debt of the eighties. The decade of greed indeed!). The subsequent economic benefit (not squelched until fairly recently) to most everyone was to the extreme.
The fact is that public naivety abounds about the effects of taxation. If this wasn’t the case, the economic health of the U.S. would be stout and the tide of rising standard of living would raise all who live here.
Will
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Jeez Will, when I begged you to drop a few morsels of E Economus Pluribis Unim, I did not expect the TAX missile launched first! I swear I've run the gamut on this subject. From the purely capitalist view, to the sort-of-center-left view of some moderate Democrats now in power. The argument for and against taxation is so complicated in so many levels that it turns off many people because it is not "fast food" thinking. It takes basic understanding of various disciplines such as yours and others to fully grap the monolithic power of the topic. As much as I am a Boston-tea-party-to-hell-with-taxes guy, there is a need for taxation of some method. The military, skeletal government infra-structure, highways, public works, national emergencies, and the ability to help those unable to do so for themselves, compells us to accept a reasonable expectation of taxation. This IS the Unites States and in order for there to be a semblance of order and stability among the 50 sovereign states there has to be a treasure chest of resources for those things agreed upon as "common good" and national interest as imposed by the voting public. Having said that, the other side of the coin is as you so well put it, the painful negativity it has on money left to spend, which is a substantial percentage of the economy. I just looked at my phone bill here in California, there is a little known tax in there for $$0.67 cents every month. Like clockwork its there every month, large enough to make tens of millions for the state, small enough not to piss me off too much. So just for the hell of it I called in to my rep and asked her what the hell it was. It took her 15 minutes to look it up. She came back with a term I had never heard, ever. So I looked it up. It was a tax initiated to pay for the Spanish-American war at the turn of the century that was never repealed, just re-named to keep bozos like me from looking at it too closely. Think of it. NEVER REPEALED. The problem with taxing is not that under good stewardship it cannot correct, steer, fund and help the common good. Its that once implemented it is NEVER repealed because society will always find a way to justify its existence. We can fudge the percentages here and there but the basic tax imposition will always be there. You're right Will, the boon of the Kennedy era and Regan era tax cuts are undeniable in both scope and effect as enonomic history blatantly reflects. And yet the left goes ape in rhetoric. Why can't the Government be like God? He is perfectly happy with 10% of your take home, he never complains if you're late, and if you don't pay he just chalks it up to forgetfulness and wipes the slate clean. Why can't the country whose currency says "In God we Trust" follow his example? Lastly, there is a great book just out. Its called IN OUR HANDS by Charles Murray. A primer on how to (in his views) end the welfare state as we know it and totally abolish income taxation. Talk about a life changing read. Loved this blog Will, food for thought, food for change,.. continue the basting.
Dardin,
Great response on Will's blog. Taxation is a topic he and I like to discuss frequently. It's nice to see another person recognize the fiscal similarities of Reagan and Kennedy. I think you are adding some value to the blog.
~Milt~
Great response on Will's blog. Taxation is a topic he and I like to discuss frequently. It's nice to see another person recognize the fiscal similarities of Reagan and Kennedy. I think you are adding some value to the blog.
~Milt~
Thank you Milt, mutual admiration societies be damned, I do appreciate your kind words to my humble contribution here. Love the new look of the blog. For a second I thought I had been transported to the DNC's web page.... horrors!
Dardin,
You nailed it on the head. Tax discipline is what we are asking for. Your example is a great one. Government undisciplined is absurd!
Will
You nailed it on the head. Tax discipline is what we are asking for. Your example is a great one. Government undisciplined is absurd!
Will
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