Over a year ago, I made the argument that a massive sales tax would cause demand for R&D to drop, leaving society with a lower standard of living than they would otherwise have. This seems logical to me, but there's always the possibility that I'm failing to look at this from all angles.
What say ye?
Doesn't sound too fair to me.
Someone who spends 100% of their income on consumables would be taxed much higher, as a percentage of their income, than someone who spends 50 percent.
Who spends the largest percentage, low wage workers. Who spends the least, the rich.
I would think this would lead to a higher demand for R&D though, businesses would have more incentive to increase efficiency and quality to give people more 'bang for their buck' in order to entice them to part with their untaxed income in exchange for taxed consumer goods. Just like under our current system except for the 'untaxed income' bit.
If you want to be 'fair' about it, make governments *earn* their income through productive means instead of resorting to taxation in the first place.
Anonymous Coward:Doesn't sound too fair to me.Someone who spends 100% of their income on consumables would be taxed much higher, as a percentage of their income, than someone who spends 50 percent.Who spends the largest percentage, low wage workers. Who spends the least, the rich.
This would mean that you want to tax "rich" at at least the same percentage rate as you would "poor" ? Have you considered that at say 50% of their income, rich would pay several times more toward common needs than poor at 100% of their income being taxed? If so, then is your ultimate goal to instill similar pain, no matter what the income level?
Thorgold:This would mean that you want to tax "rich" at at least the same percentage rate as you would "poor" ? Have you considered that at say 50% of their income, rich would pay several times more toward common needs than poor at 100% of their income being taxed? If so, then is your ultimate goal to instill similar pain, no matter what the income level?
Nope, I was merely pointing out it isn't 'fair'. What's good for one group is bad for another is the general rule when it comes to wealth redistribution.
I think the only way to be truly fair about the whole thing is to tax everyone equally at 0% and have the government make money the old fashioned way. That being said, I wouldn't be opposed to a flat tax and a constitutional amendment that the government *has* to stay within their budget -- also none of this monetizing debt and inflationary taxation they are so fond of. Assuming of course that taxes are a necessary evil and there simply wasn't any way for them to raise money other than a payroll tax but that's highly doubtful.
As Hoppe as said, if politicians want money, they can go around begging for it, like Kings used to.
Anonymous Coward: Doesn't sound too fair to me. Someone who spends 100% of their income on consumables would be taxed much higher, as a percentage of their income, than someone who spends 50 percent. Who spends the largest percentage, low wage workers. Who spends the least, the rich.
No. The bottom quintile pays 40%. The top quintile pays 70%. http://www.taxfoundation.org/publications/show/22694.html
libertarian:No. The bottom quintile pays 40%. The top quintile pays 70%. http://www.taxfoundation.org/publications/show/22694.html
Huh?
That's not the 'Fair Tax'...
>a massive sales tax would cause demand for R&D to drop
Huh? I don't see the cause and effect here at all. If the government spends the massively increased sales tax on R&D, then quite possibly the R&D will rise.Maybe investment in R&D labor services will suddenly be more attractive because the purchase of capital items such as computers or machines is now taxed too heavily.
> leaving society with a lower standard of living than they would otherwise have.
Perhaps. No R&D, and technology never progresses. Spend 100% of our money on R&D, and everyone starves to death. It seems there is an optimal level. But do you presume to know what the optimal level is? How can you be a better judge, posting on some website, than the entrepeneurial managers who are risking their own money in their striving to serve consumers as best as possible?
What if your society is full of Luddites, who consider R&D to be abhorrent. For example, they despise research into stem cells from aborted foetuses. Are you improving their standard of living by increasing the amount of R&D in this area? Or harming it?
I have a hard time believing that one kind of huge distortion in the economy (fair tax) is going to be significantly better than another (income tax), when the damage done by them is not precisely calculable.
A fair tax is a theoretical impossibility. Twas Calhoun who first pointed it out, I believe. Often echoed by Rothbard.
Any tax must have the effect of creating two distinct classes of people - the net tax payers, and the net tax consumers. These groups have opposite interests at stake, the tax payers being harmed by a tax increase, the tax consumers benefitting from it.
Even if you could have a fair tax, what a collosal waste of effort it would be! To tax everyone, and then distribute the benefits so that eveyone was benefitted in proportion to the tax paid, why bother taxing at all? Clearly we can see that the entire purpose of taxing is to redistribute wealth in some way. We must forget about a "fair" tax. No such thing.
The above post by"Drab H Thor" is an excellent point on taxes in general.
I think that when contemplating any taxation scheme it would be useful to keep this in mind:
1) The reason for taxation as it pertains to FIAT money system has nothing to do with collecting funds for any purpose whatsoever. The taxes in FIAT are collected entirely to keep FIAT in use. If we were not taxed, we would then opted to use other currency. By having to pay taxes in say, USD exclusively, even a gold dealer has to buy some USD to pay taxes. G-men won't accept gold.
Any argument that attempts to support taxation use as a means for funding falls flat on it's face, because the funds could simply be created into existence not changing anything about FIAT money system in principal.
2) Because of the above (1), the only discussion regarding tax use for funding can possibly make sense in a system that cannot create money out of thin air, which is why it might have a *need* for funds. Only then, funds truely need to be raised. Only then we can start looking at the goals of such fundraisings, and to determine if those goals are valid (paying for the president's office expences) or not (taxing Peter to pay Paul).
In case I was being unclear, when I said "this seems logical to me," I did not mean that the "Fair" Tax seemed logical to me, but rather that the argument I had posed against the tax seemed logical.
I originally came up with this argument a year ago. Here's a clip of what I had written:
"With huge sales taxes (and I have heard FairTax proponents call for taxes up to 35 or 40%), people are more likely to buy cheap imitation products, and thus producers will be less likely to put money into the R&D of better-quality products. This will hinder progress and, in the long-run, hurt our standard of living."
allixpeeke:Over a year ago, I made the argument that a massive sales tax would cause demand for R&D to drop, leaving society with a lower standard of living than they would otherwise have. This seems logical to me, but there's always the possibility that I'm failing to look at this from all angles. What say ye?
You don't need to go any further than Europe to see what a massive sales tax will do: for example Britain has a 17.5% VAT, Germany 19% (more on this later), Italy 20%, Denmark 25%, Finland 21%. Of course some goods (arbitrally chosen) are subject to different, lower VAT brackets.
For the average buyer this is another tax in top of all the others but it's usually cheerfully accepted because "it's used to give us better hospitals and to help the needy".
But let's get back to the R&D subject. How do European industries get around this problem? Three possible ways: first (and most common) they lobby to have as many R&D activities as possible obtain tax-exempt (or tax-deducible) state. Governments are usually happy to oblige, and perhaps will even provide additional fundings for "selected programs" at taxpayers' expenses. The recent VAT hike in Germany (from 16 to 19%) was motivated among other things as a desire to make the German industry more competitive abroad by giving tax breaks for selected activities, research funds etc. Second: they relocate their R&D facilities where taxes are lower. European governments are starting to notice a so called "brains escape", meaning the most gifted and talented researchers tend to head where their work is most needed and where there are generous employers willing to pay good salaries. To give you an example my neighbours's oldest son emigrated to the US to work as a medical researcher for a private firm: he earns much more there than here (despite the plummeting dollar), he pays less taxes, he has better carreer options etc. I bet his company's products will be sold in Europe as well. Third: they "muddle through". Most small firms have little or no access to government funding and cannot afford a true R&D department, even with tax breaks. So they have to make do with what they have available: people working extra hours (usually for free) to come up with a working prototype, fresh university graduates pressed into service with minimal wages etc.