I think Idaho’s right here actively participating in this thread and doesn’t need other people to explain what he meant to say.
As for your argument, I’d question your premises. If I understand you correctly, what you’re saying is that if a potential addict were aware that the earnings from his work would be siphoned off by the government rather than left to him to spend on crack, he would simply decide there was no point in earning the money.
I’d argue against that for two reasons. First, you’re committing the common fallacy of assuming the only options are all or nothing (this is the basis of the Laffer curve fallacy). You’re assuming that there’s some theoretical 100% taxation being discussed and that there’s no incentive to work because all your efforts will be taken away. This obviously is ridiculous. Regardless of whether the actual tax rate is nine percent or ninety percent, you’re getting something for your efforts. So a person’s efforts would still produce rewards.
Second, you’re assuming that goods and services can only have a zero or positive value. This is not the case. Some goods and services have a negative value. Individuals, and society as a whole, are better off if these goods and services do not exist. The hypothetical you offered would be such a case. If somebody wanted to earn money in order to buy crack and the awareness that taxation was going to take his money away before he could spend it on crack, then there is still a benefit from the existence of the tax even though it wasn’t collected. The benefit was that it kept him from buying crack. His health benefitted from not being able to buy crack. And society benefitted from decreasing the amount of money going to crack dealers.
By all means. Get rid of stupid regulations, like requirements for inspection of food producing companies like Peanut Corporation of America. Stupid regulations put this fine American company out of business!
I mean the nine people who died and at least 691 sickened from this companies products should have taken Personal Responsibility for checking out this company themselves. The fact that the bulk product was re-sold and made into other products has no bearing. It’s such a shame that the bureaucratic government FDA managed to finally shut them down after many reports.
I mean, good for them that their company’s plant in Plainview, Texas, which opened in March 2005 and employed 30 people, was never licensed in that state as a food manufacturing facility. Damn busybody government workers just would have wanted to get in there and ask for their fancy “samples” and “cleanliness”.
And while you’re at it, shut down that meddling Centre for Disease Control. Without them, this fine company would still be manufacturing tasty toxin-laced peanut butter for knowledgeable consumers, and those 30 jobs would be safe!
I wasn’t correcting him. I was paraphrasing him to use as a jumping point for adding my spin on it.
I’m not assuming 0% or 100%.
Yes, if the tax rate was less than 100%, there would always be a fraction of dollars leftover but that doesn’t take into account the comparison of effort to work for that fraction or doing something else to get that money. For example, maybe it’s more profitable to collect unemployment. Or maybe it’s better to work under the table in a hidden economy. A lot of those activities are less economically productive than straightforward legitimate work that pays honest taxes.
No. I am not talking about the the positive value of the actual goods & services (such as cocaine.)
I’m talking about the positive value of having the expectation to have more money leftover to spend on an individual’s particular desires. Unfortunately, sometimes that desire is a “bad” thing like cocaine. Again, the actual crack cocaine is bad but the freedom to choose it good overall. It’s counter-intuitive but the idea is that you have to apply that freedom of choice spending across all working citizens. Personally, I think money spent on Pro Wrestling and french fries is “bad” but I have to separate out my personal distaste from the underlying idea that some people prefer to work for those products. It’s the whole “universe” of personal preferences of spending that allows an economy to grow big enough for the govt to take a percentage and apply it towards school books. If you weaken the citizens (consumers) power for choosing their spending, you won’t have the money to collect for school books. Again, people don’t jump out of bed and work overtime so that the govt can buy school books. Surely, you’re aware of that basic human nature.
Nope. The flaw in your explanation here is that you’re taking a single scenario of “bad” buying as justification. You have to remember that envisioning a universe that allows the work effort with rewards of cocaine also applies simultaneously to the millions of other citizens that are working towards their purchase preferences of cars, tvs, french fries, etc.
The government makes better decisions than businesses or individuals.
With the businesses’ and individuals’ money.
Let me stop and think about that for a moment.
Do you care to stand by that statement? Because it’s one hell of a statement.
How about abortion? Drug use? Freedom of religion? Whether or not you can buy a delightful BMW 100-series diesel that gets 55 mpg (which you can’t by the way, in the USA…it’s illegal)? Whether or not gays can marry?
What decisions, exactly, do you think individuals cannot be trusted with? Could you elaborate a little?
You see, of course, where I’m going with this. The premise at the top was that libertarian/free market economics couldn’t work because some people didn’t have the resources that others enjoy. When I proposed that we provide those individuals with resources, the goalposts shifted a little to what types of decisions individuals make, and how the government needs to get involved.
There are supposedly regulations already in place to protect people from food poisoning. And as you point out above, people still got sick. You also forgot to mention the people who died from tainted Chinese-made toothpaste.
Your premise, therefore, appears to be…what? That if the government had not been present, more people would have gotten sick? I’m not sure what you’re getting at. How about the people who were fleeced by Bernie Madoff? He was an SEC-approved investment advisor, after all.
Let me ask you something. Have you ever travelled to Mexico or another foreign country? Have you stopped in and had something to eat at a restaurant or roadside stand?
If so, why? Those places aren’t inspected and approved by the FDA. Why did you buy food to eat from someplace that wasn’t inspected and approved by the FDA? Why did you make that decision?
This. Not sure how to cite this but I believe we had something like 75% of all manufacturing facilities in the world after the war. And by that I mean factories capable of making serious consumer items and not woven baskets. With the exception of Pearl Harbor, the United States was untouched by war.
Yes, I"m confident that if the food companies were allowed to police themselves, and there was no FDA, there would be more tainted food and more sickness in the population. Despite what you may think, the purpose of the FDA is not simply to fleece iyou of your hard earned money and give it to nameless bureaucrats who spend it on three martini lunches. Perhaps if they had not had their budge t for safety checks cut back in 2005, they might have been better prepared to catch the massive salmonella outbreak in 2008 and 2009.
I have lived for some time in a third world country. An no, I did not eat at random stands, and the food establishments I ate in (it was a stretch to call them “restaurants”) were run be people I knew with food grown locally, not mass-produced in food factories. Illness from food-borne pathogens was quite common, as it is in many third-world countries. I like having large food manufacturers inspected by qualified technicians who are not in the pocket of the very company they’re testing. It’s a good thing.
Federal taxation in the United States has hovered between 16% and 20% of GDP since 1951. Throughout the 50’s, it was about 17% of GDP. Today, it’s about… 14% of GDP (the drop entirely due to the recession, not the Bush tax cuts. Just before the recession hit in 2007, tax revenue was back up to 17.5% of GDP).
The highest it’s ever been was in 1999-2001, when it hit 20.6% of GDP for a very short time. As far as federal taxation goes, your statement isn’t correct.
State and local taxes did increase, from about 5% of GDP to 10% of GDP.
In terms of individual income taxes and FICA taxes, in 1952 they totaled 9.8% of GDP. In 2009, they were 12.7% of GDP - largely because all the lower and middle class tax cuts offset the increase in FICA witholdings. There is an increase, but it’s not dramatic.
The current crisis is entirely due to federal government spending and regulation. While tax revenue has stayed remarkably constant for the last 60 years, government spending has more than doubled.
Your statement about taxes being dramatically lower just isn’t true.
This is absolutely incorrect. Free Trade has been an unmitigated good. Far more jobs have been lost to mechanization and automation than were ever outsourced to other countries. The reason there was still nearly-full employment until the current recession is because automation, like trade, creates new jobs because it builds wealth.
That’s correct. Total government spending is the metric that really matters here.
The problem for the liberals who think the answer to increased government spending is higher taxation is contained in that chart I linked above. In the past 60 years, the top marginal rate has been as high as 91%, and as low as 28%. Excise and corporate tax structures have been changed. Liberal governments have raised tax rates, and conservative governments have cut them. And yet, the total tax receipts have remained remarkably flat throughout, never going above 20.6% and never going below 14% of GDP - and the variance seems to be more due to the business cycle than to changes in tax policy.
This phenomenon is known as ‘Hauser’s Law’, and you can really see it in the following graphic:
You’ll notice that the trend since 1950 has been for dramatically lowering tax rates, and yet income tax revenue has been incredibly constant. In addition, where the income tax did drop, the drops tend to coincide with recessions - not changes in tax policy. Furthermore, you can see that overall tax receipts tracked personal income taxes almost exactly - despite there being no corresponding major changes to other taxes compared to the income tax. In other words the variance in tax revenue was almost entirely due to exogenous factors.
The site that produced that chart also found that the change in tax revenue followed a normal distribution with only three excursions outside of one sigma.
This is a big problem for people who think that raising personal income tax rates is going to result in a major boost in government revenue. Before letting them get away with that, make them explain why it didn’t happen that way in the past.
For example when Kennedy lowered the top marginal rate from 91% to 70%, personal income tax revenue was 7.6%. In the following year, it dropped to 7.1%, but then immediately started climbing again, and within three years it was higher than it was before the tax cut, and a year later hit a high of 9.2% of GDP. It fell in the 70’s, not because of tax policy changes, but because the economy tanked. It grew under Clinton because the economy boomed - the increase in tax rates by the end of the Clinton era were not that much higher than the 28% minimum under Reagan - a few percentage points. Nothing like the drop from 91% to 28%. And yet, income tax revenues reached an all-time high as a percentage of GDP in 2000.
But last year’s deficit was 9.9% of GDP. Even if somehow you managed to unwind all of Bush’s tax cuts and miraculously get back to the kind of boom economy that existed in 1999, you couldn’t raise half of the revenue required to close the deficit gap. Very soon, the interest on the debt will be a greater percentage of GDP than the difference between the highest and lowest tax revenue levels in the past 60 years.
And things are only going to get worse when the baby boom retires. Entitlement costs are exploding while an increasing percentage of the productive work force is retiring.
Somehow, the liberals seem to think they’re going to squeeze enough in taxes out of ‘the rich’ to come up with a higher overall tax level than the U.S. has ever seen in its history, as a percentage of GDP. They have no idea how to do that, nor do they know how much damage would be caused throughout the economy by the kind of confiscatory tax levels they’d have to go to. It’s totally uncharted waters.
In fact, if the U.S. Federal government raised enough in taxes to eliminate the state and federal deficits, total taxation in the U.S. would be about 44% of GDP. Canada’s taxes are about 33% of GDP. Germany is at 36%. Russia is at 37%. In fact, the only OECD countries that would have higher taxation would be Sweden and Denmark.
Fixing the deficit through tax increases would destroy the U.S. economy. And the attempt would probably fail as the taxes would choke off growth and the revenue wouldn’t materialize. The history of U.S. taxation seems to indicate that there are very hard limits you run up against when raising tax rates.
So really, the response libertarians should be giving to the liberals is, “Why are we on the defensive? You’re the ones spending the country into ruin.”
A single scenario is all I needed. I wasn’t arguing against the idea that individuals are usually better off making their own financial decisions (a position I agree with). I was arguing spacifically against Idaho’s claim that individuals always make better financial decisions than the government does.
You missed the important part. In some cases the government makes better decisions than businesses or individuals. And in some cases it doesn’t.
I realize this makes life more difficult. Instead of having one answer to every question, you now have to think about what the answer is. But getting the correct answer is more important that having an easy answer.
Does it make better decisions more often than do private individuals? Does it make enough better decisions to overcome flaws like the deadweight loss of taxation and the loss of local knowledge in decision-making? Does it make better decisions often enough to overcome the loss of competitiveness on world markets due to taxation? Does it make better decisions often enough to justify the loss of liberty that comes with government force?
The history of big government says the answer is no. Once you get past a minimum level of perhaps 20-25% of GDP of government, the record shows that larger governments impede growth and do not improve the standard of living. They do, however, reduce the ability of the people to make their own decisions in life.
Agree. This is why the US will need to cut spending in a significant manner, as well as increase taxes, if they have any hope of getting their financial house in order. Significant cuts will have to be made to major programs <cough> defense <cough> as there is simply not enough room to cut in areas like Education, Housing or Agriculture to make any difference.
Unfortunately, I don’t see any political parties on the horizon wiling to make the sacrifices needed, either with higher taxes (and by “higher” I mean letting the Bush cuts expire on schedule) or serious spending cuts.
“Only Nixon could go to China”.
If only the Democrats could tackle major cuts to programs, OR if the Republicans could face the fact that there is no room left to cut taxes…
In my personal opinion, no. I think individuals are generally right in their decisions.
I think you’re begging the question with the first part of your question. I’d ask for proof that deadweight loss exists.
As for the second part, I’d say that one of the biggest advantages the government holds in its decision making is that it doesn’t rely on just local knowledge. The government has access to a lot more data than any individual has. And an informed decision is usually better than an uninformed one.
Compared to who? Some of the societies that have shown they are competitive against us have higher taxation than we do. If you frame the issue in terms of chronology rather than geography, then that’s the issue we’re discussing in this thread. If taxation hurts the economy, why do so many economies thrive under higher taxation?
Taxation is a very minor aspect of government force and liberty issues. If you’re arguing those issues you should be looking at the criminal code instead.
You know, this isn’t really something that’s in dispute. Taxation raises the threshold required for marginal gain in value, which destroys trades that fall below that level.
Economists may disagree on how big the deadweight loss of a tax is, as it varies based on the elasticity of supply and demand, whether there are externalities in a transaction, etc. But those factors only determine the size of the deadweight loss. Perhaps in the case of externalities the taxation may actually cause a Pareto improvement when the cost of the externality is factored in, but that would only apply in very specific, very limited markets. In general, no one I know of disputes the existence of deadweight losses due to taxation.
It most certainly does not. It lacks the biggest piece of information possible: What do people really value? That information isn’t available to government because it emerges in the course of voluntary transaction.
Look around you. Look at the array of goods you have purchased. Each purchase was the result of a decision you made regarding the relative value of that product in comparison to all the other things you could have done with your money or time.
Go look in a grocery store or a Home Depot. Look at the wide array of products available. Note that there isn’t generally a huge amount of excess inventory, and that there aren’t a lot of shortages. Somehow, all of those goods made it to your local store, in just the right quantity, to meet the demands of the people in the area.
Now think of all the other businesses that had to be in the mix to make that happen. Manufacturers, shippers, miners, people who made the products needed to make the products that made the boxes that the products were shipped in. All working at high efficiency, in just the right quantities, optimally using resources and constantly refining and restructuring to match the changing demands of the public.
Government could never hope to match that level of efficiency, for one reason: It lacks information. It doesn’t know who really needs what they need. It doesn’t know how to value an hammer over a box of donuts or a Blu-Ray disc. Yet we make such choices all the time, and the market responds.
Certainly. And part of that information is the local knowledge of a community, the local knowledge of a worker, the best practices and procedures collected within a firm. The local knowledge inside your head that allows you to choose whether you really need a new hammer at the current price just because your old one has a ding in it.
When a government decides to fund a company’s research, or a politician in Washington decides to push for the construction of a new road in his district, he has no way of knowing whether that road construction or research is the most efficient use of capital. Because he lives in a world that imposes decisions by dictate. The information he receives is distorted by special interests. His incentive isn’t to make the best, most efficient road system - it’s to get re-elected.
On the other hand, if a private individual wants to raise capital to fund his research, he has to compete for it against all the other ways capital could be utilized. If he wants to hire researchers, he has to bid for them against all the other employers that need those researchers. If their price is too high for him to make a profit employing them based on his risk/reward calculation, he won’t hire them, and their labor will be freed up to be used in a higher-value job. Government lacks the tools to make those kinds of basic determinations. Instead, it has to rely on intermediaries and 3rd parties, all of whom have axes to grind and incentives that have nothing to do with what’s actually the best research to undertake.
To properly frame this question, you have to look at the effect of taxation over a larger population. Individual countries may do okay under higher taxation for their own reasons - an abundance of natural resources, for example.
But there have been plenty of studies done on the effect of taxation, and I don’t know of one that found that higher taxes increased growth or were irrelevant to growth.
This paper studied changes in marginal tax rates and their effect on growth, and concluded:
Last year, an important paper was released by Christina and David Romer - you may remember her as President Obama’s chief economic adviser, who has since resigned.
This paper separates what they call ‘exogenous’ tax changes - tax changes specifically intended to reduce the deficit or to promote long-run growth, from tax changes required to pay for new spending or for counter-cyclical purposes. This isn’t because the taxes are fundamentally different, but because the endogenous changes are entangled with other economic effects and thus hard to quantify. By looking at ‘exogenous’ changes, they felt they could get a better handle on the real effects of tax increases. What did they find?
Two interesting things about this: One is that the contractionary effect of new taxes is very strong. Specifically, they found that increasing taxes by 1% of GDP could reduce economic growth by as much as 3%.
The other interesting finding is that tax increases that were directly applied to deficits did not have the same contractionary effect - this indicates to me that large deficits are as destructive as taxes, and that’s a real problem for the Keynesian model. In other words, the economy sees deficit spending as a future tax, and the permanent income hypothesis would then suggest that people will behave as if they had lower incomes. If so, then the gain you can get from spending borrowed money is nowhere near as high as classical Keynesian theory would predict. But that last part is just my interpretation of one of the possibilities for the finding that tax increases to pay for deficits seem to be close to growth neutral.
These strong negative effects of higher taxation could be one reason why total tax collected seems to be so stable in terms of GDP - increasing tax rates simply decreases growth. So you get a short spike in tax revenue, followed by a period of regression to the mean. When you cut taxes, you get a short drop in tax revenue, followed by a period of regression to the mean.
I could go on for hours, listing papers that have shown higher taxes to be a drag on economic growth. Do you know of any papers that show the opposite?
I continue to find it amazing Sam, that you spend so much time writing well-written posts to disabuse posters of the notion that central planning of an economy actually works.
Makes you wonder what they teach in the schools these days.
This is a very good point. Tehre is some [point at which taxation becomes counterproductive and 92% probably shoots past that point. Do you think we are in any danger whatsoever of even approaching that point with currently contemplated tax propoosals?
By the same metric that you use (inflation and population adjusted), tax revenue hasn’t been shown to decrease with tax increases by Clinton, heck the economy hsn’t been shown to slow by the Clinton tax increases.
I’m going to rewrite your statement a bit [changes in brackets] :
"I might answer your question with a question…[why should] the government taking 91% of marginal income result in a private-sector ‘boom’? [even though noone has sugegsted that it was the tax rates that CAUSED the economic boom, rather they are sugegsting that the tax rates didn’t seem to cripple the economy as some people would like us to believe]
What could possibly happen when government officials take that money and shuffle it around, that could result in an explosion of wealth-creation and employment in the private sector? [other than taking money from the hands of savers and putting it in the hands of spenders (or if we institute a national sales tax, take money from the hands of spenders and put it in the hands of savers) because the ability to amnipulate spending and savings rates are not inconsequential to economic growth; in the case of the 50’s 60’s we were payiong off a lot of war debt which was putting money back in the hands of wartime savers to either spend in piost war period or spend during the post war period.]
If there is no reasonable hypothesis to answer that question (and there are a few, I will admit…but they are never discussed intelligently on this Board) then the government [ought tohave] no right to that money.
[quote]
The burden of proof [should not be] on you to “prove” the taxpayer [ought to have] a right to your money [(which stops being your money as soon as it is taxed)]**. The burden of proof [should be] on the government to show how they will not squander it. Otherwise it [should remain with] the taxpayer"
I can agree with this statement as amended. And in an era of unsustainable budget deficits that simply CANNOT be closed with spending cuts, I think the government has met the burden of proof unless and until folks like the tea party starts advocating for eliminating large parts of medicare, social security and the military.
Sam, you’re still begging the central question. All your arguments have been based on the assumption that government actions produce no value. With that as a premise, it’s easy to prove that in any economic situation government action should be reduced as low as possible.
But you haven’t proved that premise and I don’t think you can - because government actions do produce value. So it’s not an issue of a set of actions that produce value vs a set of actions that don’t. It’s an issue of whether the value produced by an action is more or less than the value that would have been produced by other actions that could have been taken instead.
Sam Stone
I don’t think the chart you put up supports your view. First there is a lot more going on than the just the top marginal rate. The size of the tax base also matters. If you broaden the tax base and eliminate tax shelters you can reduce tax rates and still maintain similar levels of revenue. This is what happened in the 1986 tax reform which was a bipartisan bill sponsored by Gephardt and Bradley.
However if you maintain a similar tax base and adjust for the business cycle, rising tax rates will usually mean higher revenue and falling tax rates will usually mean lower revenue and the last 20 years of US history bears that out. You saw a major increase in income tax rates in the early 90’s, vociferously opposed by conservatives, which resulted in significant increases in revenue; from your charts a steady climb in income taxes from less than 8% of GDP to 10% by the end of the decade.
Then you had the Bush tax cuts and you had a decline in income/GDP so that at the peak of of the business cycle before the crash you still had tax/gdp significantly below its late 90’s peak. It’s not hard to infer that if you raised taxes to the Clinton levels you would have a signficant gain in revenue.
It’s also more than a little odd for a libertarian to use the 50’s as evidence for their philosophy today since the libertarians and conservatives of the day were crying hoarse about the dangers of socialism at the time. Hayek was warning about the road to serfdom. Conservatives in the US had shouted for 20 years how the New Deal had destroyed capitalism as they knew it (and they were right).
The financial sector in particular was vastly more regulated than today with fixed exchange rates, the Glass Steagall act and very little of the financial “innovation” we have seen in the last few decades. Unions were much more powerful than today. As mentioned the top tax rate was much higher. It was the heyday of Keynesian demand management. In general in both the US and Europe, government intervention was increasing and yet it was some ways a golden age of economic performance with rising productivity and growth combined with falling inequality and poverty.
In certain respects of course there was less government than today but it was a lot more than what libertarian philosophy dictates and certainly more than what you had in ,say, the 1920’s.
