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It's worse then outlined in the article. Sally also pays other taxes with her "net" income. If she rents, her rent is certainly higher because of the landlord

It's worse then outlined in the article. Sally also pays other taxes with her "net" income. If she rents, her rent is certainly higher because of the landlords property taxes. If not, she pays it herself. Then there is sales taxes and excise taxes to may. Truth be told, of the money that the employer pays to keep her employed, only a little more then half of it ends up in her pocket. Here is a huge opinion that could be incorrect. Most people work for what they need to live. If it becomes more expensive to live, Sally will want a raise. If it's cheaper to live, she won't be so pissed when she doesn't get a raise. The bottom line is all that matters to most people. Therefore, no matter what taxes are created, purported to be income tax and what not, are paid by businesses. What does this mean in practice? It means that by having incoming taxes at all, we are encouraging business to hire people outside of the US. The only way to level the playing fields, as far as I can see, would be to shift the taxes from income to sales. I don't know if that is plausible or not, but it's the only way I can see the US government really encouraging job growth here in the US. It would mean that no matter where your company does it's business, if it uses the US market, it has to pay the piper, and would give a real shot to US workers at competing with other world-wide workers.

rwl 16y ago
Shifting taxes to sales, especially in a significant way, will just dampen aggregate demand, and push us into a deeper and longer recession. (See a comment I made here, on an article that didn't get any front-page time about states looking to raise revenue by taxing online sales: http://news.ycombinator.com/item?id=1513784 http://news.ycombinator.com/item?id=1513784) An alternative solution is to tax the unused value of illiquid capital like land. Unlike income and sales taxes, which act as disincentives on economic exchange, this kind of tax acts as an incentive for exchange, production, and employment: if you own capital which is not being put to use, this tax is either an incentive to put it to use or to sell it to someone who will. This isn't a new idea. It was put forward by Henry George in Progress and Poverty in 1879: http://en.wikipedia.org/wiki/Progress_and_Poverty http://en.wikipedia.org/wiki/Progress_and_Poverty (Disclaimer: I haven't read the book, but I did buy it recently and it's on my to-read list.)
- Retric 16y ago
  This is actually the economic argument for low levels of inflation.
  - rwl 16y ago
    Can you elaborate, please?
    - Retric 16y ago
      It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Consider property taxes: if your ranch makes 100k / year many people will haply keep doing that for sentimental reasons, if however the land is worth 50 million and you need to pay 100k in taxes each year you will sell it to someone who will use the resource more productively. It also eats away at debt. So if say the housing market is under water inflation is going to help people get out from their debt load. PS: Or consider what happens with 20% deflation, what would you invest in?
      - rwl 16y ago
        Ah, I see: the argument is that we ought to try to maintain a little inflation, but not too much, because it acts as an incentive for better capital utilization. Perhaps I'm being thick, but I'm still unsure: when you say, "Actually, this is the argument for low inflation," do you mean that we should focus on maintaining a low level of inflation instead of taxing underutilized capital? or in addition to it? or that, in policy terms, they're two sides of the same coin?
      - eru 16y ago
        > It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Please be careful to talk make clear whether you are talking about nominal ROI or inflation-adjusted (i.e. real) ROI. If you have a tame investement with x% real ROI, you will get approximately x%+inflation nominal ROI. So your argument needs patching up. It is true, that inflation deters one from just holding onto cash.
eru 16y ago
I agree in general. Also many economists at least thought about tax systems based on mostly consumption taxes, not taxes on income or production. > If she rents, her rent is certainly higher because of the landlords property taxes. But here I disagree, at least somewhat. Property prices and rents are---to some degree---determined by how much people bid them up. Taxes on real estate influence how much of the rent goes to the owner and how much to the state. But the absolute level of rent won't be affected much. (This is more the the more fixed the supply of real estate happens to be.)
- doki_pen 16y ago
  I'll cede that point. I wasn't thinking clearly.
  - eru 16y ago
    By the way, that's why real estate is one of the better things to tax. Those taxes don't distort economic activity as much as e.g. a tax on the house that's build on the real estate, or taxes on wages.
- eru 16y ago
  > (This is more the the more fixed the supply of real estate happens to be.) Correction: (The more fixed the supply of real estate happens to be, the more pronounced this effect will be.)

rwl 16y ago

Shifting taxes to sales, especially in a significant way, will just dampen aggregate demand, and push us into a deeper and longer recession. (See a comment I made here, on an article that didn't get any front-page time about states looking to raise revenue by taxing online sales: http://news.ycombinator.com/item?id=1513784 http://news.ycombinator.com/item?id=1513784) An alternative solution is to tax the unused value of illiquid capital like land. Unlike income and sales taxes, which act as disincentives on economic exchange, this kind of tax acts as an incentive for exchange, production, and employment: if you own capital which is not being put to use, this tax is either an incentive to put it to use or to sell it to someone who will. This isn't a new idea. It was put forward by Henry George in Progress and Poverty in 1879: http://en.wikipedia.org/wiki/Progress_and_Poverty http://en.wikipedia.org/wiki/Progress_and_Poverty (Disclaimer: I haven't read the book, but I did buy it recently and it's on my to-read list.)

Retric 16y ago
This is actually the economic argument for low levels of inflation.
- rwl 16y ago
  Can you elaborate, please?
  - Retric 16y ago
    It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Consider property taxes: if your ranch makes 100k / year many people will haply keep doing that for sentimental reasons, if however the land is worth 50 million and you need to pay 100k in taxes each year you will sell it to someone who will use the resource more productively. It also eats away at debt. So if say the housing market is under water inflation is going to help people get out from their debt load. PS: Or consider what happens with 20% deflation, what would you invest in?
    - rwl 16y ago
      Ah, I see: the argument is that we ought to try to maintain a little inflation, but not too much, because it acts as an incentive for better capital utilization. Perhaps I'm being thick, but I'm still unsure: when you say, "Actually, this is the argument for low inflation," do you mean that we should focus on maintaining a low level of inflation instead of taxing underutilized capital? or in addition to it? or that, in policy terms, they're two sides of the same coin?
    - eru 16y ago
      > It forces people to be more aggressive with their investments if they want to maintain wealth. If your making 15% ROI each year 2% inflation is nothing, if you make 2.5% ROI each year inflation is going to crush you. Now which one of those people has demonstrated a better utilization of capital? Please be careful to talk make clear whether you are talking about nominal ROI or inflation-adjusted (i.e. real) ROI. If you have a tame investement with x% real ROI, you will get approximately x%+inflation nominal ROI. So your argument needs patching up. It is true, that inflation deters one from just holding onto cash.

eru 16y ago

I agree in general. Also many economists at least thought about tax systems based on mostly consumption taxes, not taxes on income or production. > If she rents, her rent is certainly higher because of the landlords property taxes. But here I disagree, at least somewhat. Property prices and rents are---to some degree---determined by how much people bid them up. Taxes on real estate influence how much of the rent goes to the owner and how much to the state. But the absolute level of rent won't be affected much. (This is more the the more fixed the supply of real estate happens to be.)

doki_pen 16y ago
I'll cede that point. I wasn't thinking clearly.
- eru 16y ago
  By the way, that's why real estate is one of the better things to tax. Those taxes don't distort economic activity as much as e.g. a tax on the house that's build on the real estate, or taxes on wages.
eru 16y ago
> (This is more the the more fixed the supply of real estate happens to be.) Correction: (The more fixed the supply of real estate happens to be, the more pronounced this effect will be.)