Comment by kiba 7 days ago
Taxes on income or capital inherently reduce income and capital. Ditto for sale taxes, which reduces transaction volume.
This is bad for the economy and ultimately reduce our tax base.
About the only thing that doesn't happen is for non-reproducible privileges such as land, intellectual properties, the electromagnetic spectrum, etc.
> Taxes reduces taxes?
Yes. It’s a second-order effect. Imagine if there were a 100% tax: the government would probably get no taxes, because there would be no economy.
> So are you saying that 0% rate taxes would capture the most tax?
No. There’s a sweet spot. Everyone argues about where it is, but obviously 0% and 100% tax rates would both be problems.
It all depends on where you apply the taxes.
If you tax inputs but not outputs, then a 100% tax rate increases the cost of goods and services but does not necessarily kill the business.
If you tax income, then a 100% tax rate kills all income. However, income taxes are usually progressively, so a 100% marginal tax rate places a cap on income, but income below that can exist.
If you tax profit, a 100% tax rate leads to shifting profits to reinvestment and salaries and benefits.
> If you tax profit, a 100% tax rate leads to shifting profits to reinvestment and salaries and benefits.
There wouldn't be any money to reinvest into salaries and benefits, because capital would not be deployed on a risky, potentially money-losing venture without the possibility of profit.
Not all taxes are in income or capital. Some are e.g. on consumption (gas, cigarettes, carbon, etc). There’s an argument that in place of corporate income taxes, we should let companies reinvest freely (or pay dividends), and then recoup the taxes elsewhere. The Planet Money podcast has a classic episode about this and other aspects of a presidential platform most economists could agree on.
I'm heartened to see this downvoted, since it's basically tax-trolling.
Yes, there are people who think tax==bad. Most people (and for a century or so) have understood that taxes are ultimately spent, and normally with a "multiplier". That is, on something which actually stimulates further economic activity.
Corporate profit, OTOH, normally just satisfies the rent-seeking economy, which is not productive in any natural definition. For instance, dividends and stock buybacks. Yes, some corporate profit feeds entrepreneurship, but that's simply not a large fraction of the corporate economy.
It's simply pointing out that taxation of economic activity is detrimental to the state, not that taxes are evil. This should be avoided as much as possible unless truly necessary.
The state can still tax in two ways, taxes on undesirable negative extremity such as products that give you long cancer, and unreproducible privileges. I listed those examples. There may be ground for taxing extreme wealth but I want to see extreme inequality fixed first.
I am not even disputing that the government spending encourages economic activity, but we should at least not shoot ourselves in the foot only to heal the foot with another hand.
I am advocating for the interest of the state.
Taxes reduces taxes?
So are you saying that 0% rate taxes would capture the most tax?