Thursday, May 13, 2004
[ECONOMICS] Inheritance Taxes, Investment Taxes, Castes, and Economic Classes: A Response to Tps12
My friend Mr. Tps12 wrote a diary which roused some childish anger in me -- the kind that comes when that to which I hold as true is challenged and I'm unprepared to respond intellectually. To the end that I ought to improve my mind even if only in bits and pieces, I'll attempt here to assess what he says.
The subject matter is economics -- such policy and theory as deals with taxation -- and the consequences of certain policies on society. Specifically, inheritance taxes and investment taxes are blamed; and such ill-effects as class-stratification and poor economic progress (in general) are highlighted.
Regarding inheritance taxes, Tps12 writes:
What's the logic behind not taxing parts of long-held wealth? Doesn't that a) encourage people to amass wealth rather than spend it and b) work against class mobility, both antithetical to a healthy market economy?
---
Scrapbook:
Tps12 On taxes on investment: "The only boost actual business get from investment tax cuts is in investment capital; if their business doesn't cut it, they just have more to lose, which will cause a backlash in investments, and if it does work out then the investors are the onse who benefit."
* * *
Me: Discussion on the estate tax seems to come down to a question of justice. The economic considerations weigh in against the tax. Capital accumulation, other things being equal, is good for people in all kinds of economic conditions. The argument for the tax in that it encoruages spending rests on a fallacy (Keynesian, let's say). Spending keeps the national accounts circulating, it says, and so on; it must be encouraged. But it must be remembered that spending really only comes out of savings. A consumer can only exchange a dollar for a good because of the underlying assumption that that dollar represents other goods having been produced and saved.
I say the issue comes down to a matter of justice. Are the estates in the particular society under examination -- the United States -- the rightful property of their claimants, by and large? Have they been acquired by legitimate means, such as voluntary exchange or real homesteading? Or, on the other hand, are they akin to aristocratic endowments like those that used to be parcelled off by the millions of acres by false-claimants such as kings?
* * *
Murray Rothbard, *Power and Market*(a PDF file), pp. 100-108 (TOC)(really p. 53 ff.) -- different kinds of income taxes -- and pp. 111-118 (TOC; really p. 58 ff.) -- taxes on accumulated capital. Selected quotations and notes and possibly comments below.
On the corporate-income tax:
First, note that this constitutes a "double" tax. The owners are taxed, also, after the "corporation itself" (so-called) is taxed. This has at least a couple of implications/effects.
One, to eliminate the "double" effect, we would need to do what in fact makes economic sense anyway -- consider corporate income as /pro rata/ income of the shareholders (owners) themselves. Bear in mind, after all, that there is no real entity here other than the shareholders and their representatives in management.
Two: The double taxation encouraged investors to keep the income (from their investments) locked up in the corporations in which they were placed. While this may look to mean increased investment and hence a greater production of goods and services, two objections must be raised. First, to force savings rather than consumption -- as this amounts to -- cannot be rationalized as good for those very people whose preferences have been so forcibly altered from the distribution (savings vs. consumption) that they expect to be best. And second, [what's stronger in my opinion, -IHD] the so-called savings is really not so, as it is locked-up in those businesses, rather than free and mobile to be re-invested (or spent, as the case may be) in outlets deemed more profitable.
Also: Note that corporate-income taxation penalized one form of firm-organization -- the corporate structure -- as against other forms -- partnerships, et al. The penalty leads to more inefficient organizational modes. The prevailing level of interest earned by firms ("profit") will level off at a lower level.
* * *
Note to emphasize -- perhaps -- in my paper: Capital amounts to demand for more-original factors of production, be it land, labor, or higher-order capital goods. Reduced real investment amounts to reduced capital accumulation, which amounts to less of a fund available frmo which to buy labor-hours.
• * *
Tps12 wrote: Investors invest more when they face less taxation of business-income. But the workers work little, because they face high taxation of income. Therefore, no increased production will result from the change.
Me: Tps12’s error is in forgetting to hold all other things equal (ceteris paribus). That one impediment to production remains (high taxation of labor-income) would not take away from the boon of the removal of another impediment to production. Production would increase no less for the first impediment remaining in place.
Tps12: Capital increases as a result of the change in taxation. This means that the firms in which the capital is invested will have either more to lose, in one outcome, or more to gain. If they have more to gain, in that case the gains go to the investors themselves. The workers do not benefit.
Me: I do not follow the part about having more to lose – I do not understand what he alleges to be the ill-effect that proceeds from this fact.
As for the point that the gains do not benefit the workers, I respond.
This overlooks that labor-productivity depends primarily on the development of the structure of capital with which it ‘works.’ A fisher (e.g.) with only a rod rather than with also a boat, let us consider this case.
The latter produces more fish, we know. Also, the capitali invested goes first to the workers (refer to the theory of interest). The workers get paid as their immediate gain. Whereas, the capitalists must await their income at the time of the sale of the product.
That is to say, the fisher-capitalist buys a boat and pays a fisher-worker now. In the future, he (the fisher-capitalist) may perhaps be paid by a fish-consumer. Now, the fisher-capitalist must bid up the price of the labor of the fisher-worker. He should be willing to pay as much as the expected value of the fish (of greater quantity now), minus the cost of his decision to forgo consumption until that future date. That cost is also known as the rate of interest.
But why will he bid the labor up? First, he knows that consumers are willing and able to buy the greater quanity of fish at that future date. And he knows that other capitalists know this. That they also know this means that they should be willing to compete for the factors of production, including the labor.
• * *
Notes on Rothbard, “Taxes on Accumulated Capital” (p. 111):
He speaks of the much more genuine case for a charge of /double taxation/ with reference to accumulated capital rather than current savings. The former is an inheritance from the past, while the latter, when it is taxed at that point, it is merely at the point of allocation of income.
Property taxation. Here, a phenomenon called tax-capitalization occurs. The market imputes the cost of the tax back to the owners of /original/ land, while succeeding owners, capitalists, workers, entrepreneurs alike avoid the major brunt of the burden.
Bequests. This is a pure tax on capital. Pretty bad stuff.
• * *
This paper. Considering, put in a bit about caste versus class. Is it true that all those who advocate for reduced taxation of business-income (such as ‘supply-siders’) believe that in doing so they advocate for a greater divide between the haves and have-nots? (1) It seems Tps12 asserted this. (2) It seems somehow offensive to me. (3) I feel as though this may apply to many such advocates. Yet, I feel that others (no less) believe that such a policy disfavors a /caste society/. (4) Why do they believe that, and why do I reckon I agree? I’ll have to see.
Research notes:
http://www.google.com/search?hl=en&ie=UTF-8&q=site%3Amises.org+rothbard+caste
The subject matter is economics -- such policy and theory as deals with taxation -- and the consequences of certain policies on society. Specifically, inheritance taxes and investment taxes are blamed; and such ill-effects as class-stratification and poor economic progress (in general) are highlighted.
Regarding inheritance taxes, Tps12 writes:
What's the logic behind not taxing parts of long-held wealth? Doesn't that a) encourage people to amass wealth rather than spend it and b) work against class mobility, both antithetical to a healthy market economy?
---
Scrapbook:
Tps12 On taxes on investment: "The only boost actual business get from investment tax cuts is in investment capital; if their business doesn't cut it, they just have more to lose, which will cause a backlash in investments, and if it does work out then the investors are the onse who benefit."
* * *
Me: Discussion on the estate tax seems to come down to a question of justice. The economic considerations weigh in against the tax. Capital accumulation, other things being equal, is good for people in all kinds of economic conditions. The argument for the tax in that it encoruages spending rests on a fallacy (Keynesian, let's say). Spending keeps the national accounts circulating, it says, and so on; it must be encouraged. But it must be remembered that spending really only comes out of savings. A consumer can only exchange a dollar for a good because of the underlying assumption that that dollar represents other goods having been produced and saved.
I say the issue comes down to a matter of justice. Are the estates in the particular society under examination -- the United States -- the rightful property of their claimants, by and large? Have they been acquired by legitimate means, such as voluntary exchange or real homesteading? Or, on the other hand, are they akin to aristocratic endowments like those that used to be parcelled off by the millions of acres by false-claimants such as kings?
* * *
Murray Rothbard, *Power and Market*(a PDF file), pp. 100-108 (TOC)(really p. 53 ff.) -- different kinds of income taxes -- and pp. 111-118 (TOC; really p. 58 ff.) -- taxes on accumulated capital. Selected quotations and notes and possibly comments below.
On the corporate-income tax:
First, note that this constitutes a "double" tax. The owners are taxed, also, after the "corporation itself" (so-called) is taxed. This has at least a couple of implications/effects.
One, to eliminate the "double" effect, we would need to do what in fact makes economic sense anyway -- consider corporate income as /pro rata/ income of the shareholders (owners) themselves. Bear in mind, after all, that there is no real entity here other than the shareholders and their representatives in management.
Two: The double taxation encouraged investors to keep the income (from their investments) locked up in the corporations in which they were placed. While this may look to mean increased investment and hence a greater production of goods and services, two objections must be raised. First, to force savings rather than consumption -- as this amounts to -- cannot be rationalized as good for those very people whose preferences have been so forcibly altered from the distribution (savings vs. consumption) that they expect to be best. And second, [what's stronger in my opinion, -IHD] the so-called savings is really not so, as it is locked-up in those businesses, rather than free and mobile to be re-invested (or spent, as the case may be) in outlets deemed more profitable.
Also: Note that corporate-income taxation penalized one form of firm-organization -- the corporate structure -- as against other forms -- partnerships, et al. The penalty leads to more inefficient organizational modes. The prevailing level of interest earned by firms ("profit") will level off at a lower level.
* * *
Note to emphasize -- perhaps -- in my paper: Capital amounts to demand for more-original factors of production, be it land, labor, or higher-order capital goods. Reduced real investment amounts to reduced capital accumulation, which amounts to less of a fund available frmo which to buy labor-hours.
• * *
Tps12 wrote: Investors invest more when they face less taxation of business-income. But the workers work little, because they face high taxation of income. Therefore, no increased production will result from the change.
Me: Tps12’s error is in forgetting to hold all other things equal (ceteris paribus). That one impediment to production remains (high taxation of labor-income) would not take away from the boon of the removal of another impediment to production. Production would increase no less for the first impediment remaining in place.
Tps12: Capital increases as a result of the change in taxation. This means that the firms in which the capital is invested will have either more to lose, in one outcome, or more to gain. If they have more to gain, in that case the gains go to the investors themselves. The workers do not benefit.
Me: I do not follow the part about having more to lose – I do not understand what he alleges to be the ill-effect that proceeds from this fact.
As for the point that the gains do not benefit the workers, I respond.
This overlooks that labor-productivity depends primarily on the development of the structure of capital with which it ‘works.’ A fisher (e.g.) with only a rod rather than with also a boat, let us consider this case.
The latter produces more fish, we know. Also, the capitali invested goes first to the workers (refer to the theory of interest). The workers get paid as their immediate gain. Whereas, the capitalists must await their income at the time of the sale of the product.
That is to say, the fisher-capitalist buys a boat and pays a fisher-worker now. In the future, he (the fisher-capitalist) may perhaps be paid by a fish-consumer. Now, the fisher-capitalist must bid up the price of the labor of the fisher-worker. He should be willing to pay as much as the expected value of the fish (of greater quantity now), minus the cost of his decision to forgo consumption until that future date. That cost is also known as the rate of interest.
But why will he bid the labor up? First, he knows that consumers are willing and able to buy the greater quanity of fish at that future date. And he knows that other capitalists know this. That they also know this means that they should be willing to compete for the factors of production, including the labor.
• * *
Notes on Rothbard, “Taxes on Accumulated Capital” (p. 111):
He speaks of the much more genuine case for a charge of /double taxation/ with reference to accumulated capital rather than current savings. The former is an inheritance from the past, while the latter, when it is taxed at that point, it is merely at the point of allocation of income.
Property taxation. Here, a phenomenon called tax-capitalization occurs. The market imputes the cost of the tax back to the owners of /original/ land, while succeeding owners, capitalists, workers, entrepreneurs alike avoid the major brunt of the burden.
Bequests. This is a pure tax on capital. Pretty bad stuff.
• * *
This paper. Considering, put in a bit about caste versus class. Is it true that all those who advocate for reduced taxation of business-income (such as ‘supply-siders’) believe that in doing so they advocate for a greater divide between the haves and have-nots? (1) It seems Tps12 asserted this. (2) It seems somehow offensive to me. (3) I feel as though this may apply to many such advocates. Yet, I feel that others (no less) believe that such a policy disfavors a /caste society/. (4) Why do they believe that, and why do I reckon I agree? I’ll have to see.
Research notes:
http://www.google.com/search?hl=en&ie=UTF-8&q=site%3Amises.org+rothbard+caste
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