Economics Questions

Re: Progressive Taxation helping small businesses.

Jargon — Sun, 01 Jan 2012 10:17:37 GMT

Keep posting the dialogue, if it's still going.

opponent:

That may be true, but businesses don't pass their savings on as well as they do their costs. These Taxes will go to something that'll help everyone in society, not just the traders.

As far as I'm concerned Corporation Tax is a tax on profits. If there is a 'eking' of profit, they wont be taxed at all.

All of this is garbage. The savings amassed by companies are used for reinvestment or maintenance, which means employment and the greater possibility of providing cheaper goods to more people. Lower prices mean higher real wages/higher standard of living. Those taxes which prevent companies from reinvesting are then allocated to a federal budget, where the money is chopped up into bureaucrats wages, munitions, subsidies, etc. Funds are reallocated from voluntary, productive, vulnerable-to-dissatisfaction ventures to coerced, destructive, insulated ventures. By destructive I mean that with state spending there is no incentive and quite plausibly a negative incentive to have income outweigh costs. The state's stream of income is not related to its performance, it is a constant.

What does he think that businesses do? Play catch with satchels of money? They are producing things which are demanded.

Anyways the corporate tax is a tax on income, not profit. And even if they are 'eking out a profit' they will be taxed all the same.

Re: Progressive Taxation helping small businesses.

Wheylous — Sat, 31 Dec 2011 17:39:22 GMT

He never explained why "smallness" is desirable.

Re: Progressive Taxation helping small businesses.

Libre — Sat, 31 Dec 2011 17:37:38 GMT

It's very hard to argue against this guy. Every time I go down one line of reasoning, his answer swerves to another line.

Re: Progressive Taxation helping small businesses.

Wheylous — Sat, 31 Dec 2011 17:29:53 GMT

Got him:

but businesses don't pass their savings on as well as they do their costs

And small businesses do? How come? He seems to assume that having more small businesses will pass down profits more. Plus, what's wrong with profits? Profits merely show that there is potential for growth in a market. They are an essential part of the free market. If there are no profits to be made, you know that demand meets marginal cost (in a competitive market).

Also, I'm under the impression that you haven't used the stronger lines of attack mentioned.

Re: Progressive Taxation helping small businesses.

Libre — Sat, 31 Dec 2011 17:11:20 GMT

opponent:

If you're a small business you're taxed less than if you were a big business.

Simple as.

me:

That is undeniably true. But what happens to small businesses that rely on goods produced by bigger businesses, businesses that are in the higher marginal tax bracket?

opponent:

If it's a bigger business and is taxed more it can still provide cheaper goods using economies of scale. Look at independent supermarket retailers and compare their prices with the likes of Morrisons or Tesco. They still have that advantage over small businesses.

me:

You tax the big businesses, they'll pass them onto their customers. If these customers are small businesses just eking out a profit, the higher costs incurred may make the differences between being in profit, and loosing the whole business.

opponent:

That may be true, but businesses don't pass their savings on as well as they do their costs. These Taxes will go to something that'll help everyone in society, not just the traders.

As far as I'm concerned Corporation Tax is a tax on profits. If there is a 'eking' of profit, they wont be taxed at all.

I'm reminded of Hayek's definition of "superstitious": When a person imagines they know more then they actually do.

Re: Progressive Taxation helping small businesses.

z1235 — Sat, 31 Dec 2011 15:25:48 GMT

Libre:

z1235:

Too complicated. I'd suggest a much faster and cleaner way for satisfying his fetish for small business: the government should justconfiscate all businesses larger than size X.

i.e. a marginal tax rate of 100% over $X. I wonder how he would respond to that (given that he is an "economic pragmatist" - which by the way, can anyone define ?!).

My (reductio ad absurdum) proposal uncovers that he's no "pragmatist" -- just a bully attempting to contort reality to reflect his subjective values/fetishes. All socialists are. How about the government shoots all blondes/redheads and confiscates all non-vanilla ice-cream towards forcing "society" to satisfy my own subjective preferences for brunettes and vanilla ice-cream?

And no, I'm not proposing an income tax rate of 100%, but a 100% property tax rate (confiscation!). Any business that grows above size X would be immediately confiscated by the government. Wouldn't this be the most efficient way of achieving his goal? If he likes/accepts it, then you rest your case, or ask: "Then what would be the incentive for any business to become successful/grow beyond size X, and what would this do to its customers and the economy?". If he's against it, then whatever he states against this bizarre proposal could be used directly by you as an argument against his luke-warm version of it.

Don't be intidimated by the socialists' debate tactics. Just keep your calm, disregard the emotional outbursts, the ad hominems -- and wipe the floor with him through cold reason. I've found that the Socratic method and reductio ad absurdum are most effective in such debates.

Re: Progressive Taxation helping small businesses.

Clayton — Sat, 31 Dec 2011 09:39:33 GMT

@OP: Here's a visual depiction of my answer:

http://s833.photobucket.com/albums/zz252/claytonkb/?action=view&current=Taxes_Fairy_Real.jpg

The root problem with your friend's argument is one or more of the following false beliefs:

The free market tends to monopolies
The free market always favors "economy of scale", that is, bigger is always cheaper and more economical than smaller
Larger capital value enables a larger business to "bully" a smaller one irrespective of government favors
Big businesses can always "undercut" smaller competitors by virtue of their size
Big businesses are pro-free market and welcome vigorous competition irrespective of government favors
Most new businesses are a good idea and would be profitable but for intereference from large, established competitors
Regulatory compliance is a minor burden for small businesses but causes severe consternation among large, established competitors
Government is not particularly interested in generating larger absolute tax revenues
Government is more worried about pissing off "the people" than about pissing off large, powerful lobbies

You need to ask some probing questions to try to find out which of these fallacies are being espoused. You cannot refute an assertion (seen recently on the low-content thread, h/t Wheylous):

Clayton -

Re: Progressive Taxation helping small businesses.

Jargon — Sat, 31 Dec 2011 08:21:15 GMT

Quasi-unrelated note: if there were only 10 big businesses selling the same product, and their taxes were raised, would one go into deficit to try to win customers or raise the price to compensate for higher cost?

Re: Progressive Taxation helping small businesses.

Wheylous — Sat, 31 Dec 2011 07:52:03 GMT

If the big businesses are acting within a competitive market, I am not sure that taxes on them specifically would lead to an increase in the price of the goods. Mises points out that sales taxes aren't passed down to consumers but absorbed by companies.

Look at it this way: The tax decreases your profit by 50%. You can't increase the price of the good to make up the loss because in a competitive market, you are a price taker, not a price maker. What this means is that the small businesses without the tax would simply offer the lower price you just left. You would lose your customers to the lower price, and hence you'd have no revenue (assuming perfect information).

Then again, the reason the small businesses weren't taking the business in the first place was because they weren't as efficient... Hence, even if the trade is transfered to them, their price would be higher than the original big business price.

SOMEONE CORRECT ME IF I'M WRONG!!!!!

Re: Progressive Taxation helping small businesses.

Jargon — Sat, 31 Dec 2011 07:45:00 GMT

This thread is awesome! Glad to see questions like these being asked. Anyways, onto the matter:

Under a progressive tax scheme for businesses, the larger a business becomes the heavier tax burden there is. This means that the big companies costs are going to increase and eventually they will have to raise prices to compensate. This means that the tax on business eventually becomes a tax on goods. Consider this, big-box stores like Wal-Mart make it possible for poor people to be well-fed (not that Wal-Mart is a purely free-market institution but that's a different matter). If a heavy tax was imposed on 'big-boxers', then the costs of business would be transferred onto the customers in the form of higher prices. So ask your debating opponent this: does he hate corporations more than he loves poor people? Why?

This tax scheme also makes it harder for small firms to become big firms. When owner of business A is on the cusp of moving into a higher tax bracket he faces a possibly crippling blow which might scare him off from expanding. At the least it will make his costs rise should he decide, if he can, to move up. 'Unhampered' (which really means: keeping what you earn) expansion is a good thing. It provides employment and economies of scale wherein more goods can be supplied cheaper to the masses. Doesn't he want poor people to be able to buy food?

The above points, however, are moot given the condition of a non-free/political economy wherein the size of a business is not an accurate indicator of its ability to please customers. By this I mean, in non-free markets businesses may expand at the expense of everyone through taxpayer money with unfair perks (licensing, eminent domain, subsidies, legal protections, etc.). Before coming up with a new tax scheme with which to crush evil capitalists, why doesn't he first suggest to take off the economic equivalents of laser guns and armor plating that has been given to them by means of taxation (at the expense of everyone)?

Re: Progressive Taxation helping small businesses.

Wheylous — Sat, 31 Dec 2011 07:43:28 GMT

I think we should take this to some other thread. I suggest this one or a new one.

Re: Progressive Taxation helping small businesses.

gocrew — Sat, 31 Dec 2011 06:58:31 GMT

Wheylous:

Oh, pshhhhh.

Haha. I read AE and thought it meant "Austrian Economics", so I was gonna say that Arg Eth isn't part of Aus Econ. Lol.

But yeah, Arg Eth has been thoroughly critiqued before. I am not sure whether this is the article I was reading before, but here is one by Murphy and Callahan:

http://mises.org/journals/jls/20_2/20_2_3.pdf

After getting through the first few mistakes he made I decided to quit :P

Kinsella just gave me a link to his reply to Murphy and Callahan. After reading, I have to say I think he mowed down M and C's arguments. It is a far more convincing paper, and frankly I think I am ready to commit to AE.

Re: Progressive Taxation helping small businesses.

Libre — Sat, 31 Dec 2011 06:25:52 GMT

Wheylous:

I suggest you have this argument over the internet so that you can post exactly what he replies here.

Will post verbatim.

Re: Progressive Taxation helping small businesses.

Wheylous — Sat, 31 Dec 2011 06:21:21 GMT

Another line of attack:

Alright, tax big business. Then, you only have "good", small business. However, if the small business is so good and at an advantage due to the tax, it will grow. If it is good enough, it will then become a big business. Should we then tax it?

I suggest you have this argument over the internet so that you can post exactly what he replies here.

Re: Progressive Taxation helping small businesses.

Libre — Sat, 31 Dec 2011 06:20:53 GMT

Thanks Michael J Green. Great example. I'll push him on this. If he falls back on to syndicalist styled arguments over non-scarcity and how anything is possible if only the capitalist pigs were out of the equation, then I guess the discussion is over.