Income Tax

[Puddleglum]

Several of the Republican candidates (including the one I support, Congressman Ron Paul) want to get rid of the income tax. Does anyone know what the effects would be on our economy?

I firmly support free markets and believe it would encourage people to work harder, but (to any economics or business majors in the forum) what type and degree of effect would it be reasonable to expect? If you think abolition is a good idea, what do you think would be the best way to go about it?

[Timothy Leary]

Short term? Unsure. It'd require a complete change of our tax system, and getting rid a lot of pork. Long Term? Positive.

[Jimmy Higgins]

People seem to ignore the Law of Conservation of Taxation. It states that no tax can be destroyed, it can only be created or transferred in form.

Eliminating the income tax will merely transfer where the government's income comes from. Bush has technically cut federal taxes, but how many people have seen a net-drop in their total taxation? A school levy here, a local income tax increase there... etc...

[themuzicman]

I hate to say it, but I agree with what Jimmy said, in principle. If the feds don't get their money through income tax revenue, they'll get it another way.

Bush's tax cuts actually increased revenue because of the Laffer curve (I think that's what it's called anyway), so a tax cut doesn't always mean less revenue.

However, the solution that no one wants to talk about is cutting SPENDING, not taxation.

Michael

[rogue06]

Several of the Republican candidates (including the one I support, Congressman Ron Paul) want to get rid of the income tax. Does anyone know what the effects would be on our economy?

I firmly support free markets and believe it would encourage people to work harder, but (to any economics or business majors in the forum) what type and degree of effect would it be reasonable to expect? If you think abolition is a good idea, what do you think would be the best way to go about it?



Take a look at the Fair Tax (www.fairtax.org/site/PageServer?pagename=about_main) proposal.

[themuzicman]

The problem with any massive tax restructuring plan is that large changes such as this almost always have an adverse affect on the economy, because it has to make large shifts in fiscal strategy (both personal and corporate), which slows the movement of money.

Further, the "Fair tax" hides taxes almost as well as the witholding of income tax does.

A better solution is to make every household write out a check to the federal government every three months for their income taxes.

Michael

[Pilgrim]

The problem with any massive tax restructuring plan is that large changes such as this almost always have an adverse affect on the economy, because it has to make large shifts in fiscal strategy (both personal and corporate), which slows the movement of money.

Further, the "Fair tax" hides taxes almost as well as the witholding of income tax does.

A better solution is to make every household write out a check to the federal government every three months for their income taxes.

Michael

Like clergy already does and like any self employed contract worker does.

[themuzicman]

:yes:

I wonder if those two groups are generally in favor of cutting taxes and spending...

Michael

[rogue06]

How does a straight out sales tax hide taxes???

[Pilgrim]

:yes:

I wonder if those two groups are generally in favor of cutting taxes and spending...

Michael

I'm not sure how most clergy feel about it. Many clergy unethically opt out of Social Security so they make up a lot of it that way. I can say that the self employed get hammered with taxes. Of course, as clergy you also get to double dip where housing and mortgage are concerned. That is to say, not only am I not taxed on any money I spend on my housing (and that includes mortgage and any maintenance) I also get to deduct my mortgage from my income tax just like everyone else. It all comes out pretty even in the end I guess.

I totally agree with you though, the real conversation that needs to happen is about cutting spending. It's basic economics: don't spend what you don't have. If households operated the way the government did, or even corporations, there would be real heck to pay, plain and simple.

[Pilgrim]

How does a straight out sales tax hide taxes???

I think the idea is that people in general are not seeing the reality that when you cut income tax it shows up in other places like sales taxes. all they see is, "hey, my income taxes are lower." They don't see the ever escalating sales taxes in the same way for some reason.

[themuzicman]

How does a straight out sales tax hide taxes???

Because it happens in tiny little pieces every day over the course of a year, and it automatically calculated and added to your bill. It's just as convenient as the income tax, and just as visible.

Michael

[Jimmy Higgins]

I hate to say it, but I agree with what Jimmy said, in principle. If the feds don't get their money through income tax revenue, they'll get it another way.Not the Fed necessarily. As I noted, school levies... that isn't federal taxation... that is local taxation. City income tax increase, not federal. If the feds aren't splitting the cash to the states, the states aren't splitting to cash to the local cities.

Bush's tax cuts actually increased revenue because of the Laffer curve (I think that's what it's called anyway), so a tax cut doesn't always mean less revenue.Revenue increased after the tax cuts. I don't believe it's been established that Bush's tax cut caused the revenue to be increased. Clinton raised taxes and revenue increased as well. The Laffer curve is indeed a laughable thing. Anyone can draw a curve and give it a name. Laffer's curve has no actual value to it at all. It also ignores important things like services rendered. When a monarchy taxed highly and gave little back to the commoner, that monarchy would typically be in a trouble. The principle of the Laffer Curve says if you get taxed 100%, you won't work. What Laffer neglects to answer what if you were taxed 100%, but you could have anything you wanted?

However, the solution that no one wants to talk about is cutting SPENDING, not taxation.What, 2/3 thirds of spending is non-discretionary I believe. Of the remaining 1/3, what... 50% goes to the military? And people complain about cutting out the pork!

[rogue06]

Because it happens in tiny little pieces every day over the course of a year, and it automatically calculated and added to your bill. It's just as convenient as the income tax, and just as visible.


The difference is that in the income tax the money is "painlessly" taken before you ever see it through payroll deductions, whereas with the Fair Tax you are quite aware of each tax bite. For example, when you buy $100 worth of groceries and have to pay about $125 after taxes. People will notice that and not just shrug this off. Such in-your-face billing won't change what you pay in taxes by the end of the year, but it might motivate people into demanding actual accountability for the money spent by government. Plus, it means the elimination of the IRS.

While I'm not completely convinced by it I think the Fair Tax deserves to be looked at seriously.

[themuzicman]

The difference is that in the income tax the money is "painlessly" taken before you ever see it through payroll deductions, whereas with the Fair Tax you are quite aware of each tax bite. For example, when you buy $100 worth of groceries and have to pay about $125 after taxes. People will notice that and not just shrug this off. Such in-your-face billing won't change what you pay in taxes by the end of the year, but it might motivate people into demanding actual accountability for the money spent by government. Plus, it means the elimination of the IRS.

While I'm not completely convinced by it I think the Fair Tax deserves to be looked at seriously.

I know that, personally, I don't notice my state sales tax. It's easily computed and collected by companies, and paid without our knowledge to the state. The same would be true of a national sales tax.

Also, it's impossible to adjust.

Michael

[rogue06]

I know that, personally, I don't notice my state sales tax. It's easily computed and collected by companies, and paid without our knowledge to the state. The same would be true of a national sales tax.

Also, it's impossible to adjust.

Michael


Have you ever made a large purchase? Around here, people will go to buy a car in the counties with lower sales tax rates – and that's only a 1-2% difference depending on the county. As I said before, when you go buy $100 of groceries and it is suddenly $125 due to an increased sales tax I find it hard to believe most won't notice. Of course, under the Fair Tax you get your entire pay check – no withholdings.
Another reason for the Fair Tax is that it's a tax on wealth rather than earnings. Yu're taxed on what you spend. This means billionaire trust babies living off of sheltered income pay like the rest of us.

[Jimmy Higgins]

Have you ever made a large purchase? Around here, people will go to buy a car in the counties with lower sales tax rates – and that's only a 1-2% difference depending on the county. As I said before, when you go buy $100 of groceries and it is suddenly $125 due to an increased sales tax I find it hard to believe most won't notice. Of course, under the Fair Tax you get your entire pay check – no withholdings. Is that the case? Or would there still be withholdings for Medicare and Social Security?

[Pilgrim]

Have you ever made a large purchase? Around here, people will go to buy a car in the counties with lower sales tax rates – and that's only a 1-2% difference depending on the county. As I said before, when you go buy $100 of groceries and it is suddenly $125 due to an increased sales tax I find it hard to believe most won't notice. Of course, under the Fair Tax you get your entire pay check – no withholdings.
Another reason for the Fair Tax is that it's a tax on wealth rather than earnings. Yu're taxed on what you spend. This means billionaire trust babies living off of sheltered income pay like the rest of us.

I have to admit, that sounds good to me.

[themuzicman]

Have you ever made a large purchase? Around here, people will go to buy a car in the counties with lower sales tax rates – and that's only a 1-2% difference depending on the county. As I said before, when you go buy $100 of groceries and it is suddenly $125 due to an increased sales tax I find it hard to believe most won't notice. Of course, under the Fair Tax you get your entire pay check – no withholdings.
Another reason for the Fair Tax is that it's a tax on wealth rather than earnings. Yu're taxed on what you spend. This means billionaire trust babies living off of sheltered income pay like the rest of us.

I have 6 kids. I know large grocery purchases. No, I don't look at the sales tax.

Further, larger purchases, such as cars, don't happen very often.

Michael

[Little Shepherd]

I have 6 kids. I know large grocery purchases. No, I don't look at the sales tax.You don't look at the sales tax on your purchases because it's relatively small. If your sales tax suddenly tripled or quadrupled(even if you weren't having any witholdings on your paycheck) you'd notice. If memory serves, people below the poverty level would be exempt under the "fair tax," and most used goods would be tax-free, which would cause a bigger boom in the used-goods market than eBay! Also, one of the smartest things to do with one's saved money, investing, has the side benefit of funding corporations, creating jobs, and increasing overall wealth. Even if the billionaires stopped spending so much, their keeping more in the banks and/or investing more would possibly do more good for the economy than their going out and buying a new Porsche and the latest HDTV.

[themuzicman]

Talk about a nightmare for stores to manage.

[Little Shepherd]

Talk about a nightmare for stores to manage.No, actually it would almost completely eliminate the paperwork needed by individuals as well as drastically reduce the amount of paperwork needed from businesses. As long as they have some smart method of keeping up with exemptions(perhaps a card those in poverty swipe that would also alert the government if they spend over their poverty cap in order to prevent abuse), it would be welcomed by all if paperwork is what you're worried about.

[themuzicman]

How often would you have to register as "poor"? How would grocery stores know that cards were valid? Would every business that might charge sales tax have to connected directly to a government agency that returns valid or invalid?

How do you hold businesses accountable for determining "poor" or "not poor" accurately?

How do you hold businesses accountable for paying the right amount of tax?

And you'd have to alert the government of your spending? Can you say "1984"?

The more I talk about it, the less I like it.

Michael

[Jimmy Higgins]

You don't look at the sales tax on your purchases because it's relatively small. If your sales tax suddenly tripled or quadrupled(even if you weren't having any witholdings on your paycheck) you'd notice.No withholdings... regarding federal income tax. Wouldn't you still see withholdings for state, local income taxes as well as Medicare and Social Security?
If memory serves, people below the poverty level would be exempt under the "fair tax," and most used goods would be tax-free, which would cause a bigger boom in the used-goods market than eBay! Really? Wouldn't the "fair tax" be a federal tax, as in you are still paying state and city sales tax on goods? How would that benefit used goods sales if they are exempted from the Federal fair tax? They already are exempted from that tax now. Nothing would change. You'd still be paying state and city tax on those items.
Also, one of the smartest things to do with one's saved money, investing, has the side benefit of funding corporations, creating jobs, and increasing overall wealth. Even if the billionaires stopped spending so much, their keeping more in the banks and/or investing more would possibly do more good for the economy than their going out and buying a new Porsche and the latest HDTV.Or billionaires would purchase those high price items elsewhere and somehow get them legally shipped here.

[Little Shepherd]

How often would you have to register as "poor"? How would grocery stores know that cards were valid? Would every business that might charge sales tax have to connected directly to a government agency that returns valid or invalid?They would know the cards were valid because they'd scan them. I'd assume something like a credit card for the time being, though I know they're working on microchip identification that would be embedded in one's hand -- including one's poverty status would be trivial.How do you hold businesses accountable for determining "poor" or "not poor" accurately?They scan the card/chip, it tells the computer the person's tax status, and the price is adjusted accordingly.How do you hold businesses accountable for paying the right amount of tax?The same way you hold the accountable for paying the right amount of tax now, only a whole heck of a lot less complicated. Given the reduced amount of information necessary under the fair tax, it would actually be easier for the government to keep track of whether businesses are being honest in their reportings.And you'd have to alert the government of your spending? Can you say "1984"?Now you're just being silly. The sales tax would be automatic and only those people wanting to benefit from their tax-exempt status would have to offer proof that they are, in fact, tax-exempt. If you're not tax-exempt, then you don't provide squat to the government. You just pay the sales tax and go on your merry way.The more I talk about it, the less I like it.If it in any way resembled what you seem to think it is, I wouldn't like it either. Luckily it doesn't.No withholdings... regarding federal income tax. Wouldn't you still see withholdings for state, local income taxes as well as Medicare and Social Security?That's a good question. My understanding is that the proponents of the fair tax expect that states would follow suit. However, if they don't, then at least the fair tax would make things a lot easier on the federal level. And my understanding of the fair tax plan for social security and medicare is that, as national programs, they would be figured into the fair tax just like everything else on the federal level.

[Jimmy Higgins]

That's a good question. My understanding is that the proponents of the fair tax expect that states would follow suit.Yeah... they'll just follow suit. I think that may be a bit optimistic of the Fair Tax crowd...
However, if they don't, then at least the fair tax would make things a lot easier on the federal level.For whom?
And my understanding of the fair tax plan for social security and medicare is that, as national programs, they would be figured into the fair tax just like everything else on the federal level.Really... because the Medicare and Social Security aren't figured into the existing Federal Tax right now. That can be increasing your tax load by 50%. And Social Security isn't taxed at the same rate for people who make over $90,000. They are taxed at a decreasing overall rate for Social Security as their income increases.

Just looking at the simple anecdotal numbers, if someone made 60 grand, and spent $30,000 in goods for the year, and had to make up for $4000 for fed taxed and another $2000 for medicare and social security, that's $6000 or about 20%. Add local city and state sales tax, and your at 26 to 28%.

But what worries me is that this is wholly dependent on how much I spend, not how much I made for the year. So the less I spend on American goods, the less revenue the government is making. This just seems like a huge loophole to be exploited somehow.

[Timothy Leary]

So the less I spend on American goods, the less revenue the government is making. This just seems like a huge loophole to be exploited somehow.

Jimmy's got a point there. What about people who live on the border towns? Or internet purchases?

Don't get me wrong - I like the idea of taxation based on spending a LOT more, but can we successfully implement it?

[themuzicman]

The problem with the FAIR tax is that it makes it easier, not harder, to pay your taxes, and the taxes would be just as invisible.

The downside is that it is impossible to adjust in small increments upwards and downwards. You can';t charge a 16.25430194% sales tax on $50 worth of clothes.

The solution, if there is on one the taxation side, is to repeal witholding laws. Make the US taxpayer write out the check to their local, state, and federal tax collectors every quarter. THEN you'd see income taxes fall.

Unfortunately, the whole "fix the tax code" side of this debate completely ignores the real problem, which is spending. Of course, that's harder than fixing the tax code, but fixing the tax code doesn't address the real problem.

Michael

[Jimmy Higgins]

The problem with the FAIR tax is that it makes it easier, not harder, to pay your taxes, and the taxes would be just as invisible.

The downside is that it is impossible to adjust in small increments upwards and downwards. You can';t charge a 16.25430194% sales tax on $50 worth of clothes.The downside is that there is a loophole to the plan. People wouldn't promote it if there wasn't a loophole somewhere! People wouldn't be going all over the place fighting for this if they were to make a net-zero difference in the taxes they paid.

The solution, if there is on one the taxation side, is to repeal witholding laws. Make the US taxpayer write out the check to their local, state, and federal tax collectors every quarter. THEN you'd see income taxes fall.Oh gosh... large quarterly payments? Is that really a good idea... people typically live month to month. That would be a big change to that sort of household monetary policy. Yes, I realize some people do that already, but not most people. That would be a very large change. And speak about making it harder for the IRS to collect income. The IRS costs on collection will probably jump up significantly.

Unfortunately, the whole "fix the tax code" side of this debate completely ignores the real problem, which is spending. Of course, that's harder than fixing the tax code, but fixing the tax code doesn't address the real problem.Muz, 2/3's of our budget isn't discretionary. Of the 1/3 remaining, half goes to the military. This whole, cut the pork thing is a big smokescreen by "small" government proponents. You want to cut spending, stop spending $400 billion a year on the military. People complain about $10 million spent here or $160 million spent there, when the big huge ape in the room (the military) is what is the big spending problem.

[themuzicman]

"Isn't discretionary" doesn't mean it can't be cut. It just has to be recategorized.

Michael

[Little Shepherd]

Jimmy's got a point there. What about people who live on the border towns? Or internet purchases?

Don't get me wrong - I like the idea of taxation based on spending a LOT more, but can we successfully implement it?Actually, while Jimmy has a couple points, this isn't one of them. The fair tax has nothing to do with imported vs. buying American -- you'll notice the tax break is for buying used goods. If what you're buying is new, you pay the tax whether it comes from Oklahoma or Singapore.

Also, I'm not certain how it would work with internet purchases. I know currently internet purchases are largely tax-exempt(I've only ever been charged sales tax online when buying from companies in the same state as myself). I also know that this has been a real sticking point for state and federal governments for many years now and that they've been trying to figure out a way to enforce sales tax on interstate goods. If they can figure that out then they can certainly use the system they devise to enforce the fair tax. If they can't, then they're really in no worse position than they are right now . . . only they'd be in the same position while having an easier workload.

[Jimmy Higgins]

Actually, while Jimmy has a couple points, this isn't one of them. The fair tax has nothing to do with imported vs. buying American -- you'll notice the tax break is for buying used goods. If what you're buying is new, you pay the tax whether it comes from Oklahoma or Singapore.And you don't see the possible problem here? What exactly is "used goods"? Because someone bought it and is reselling? This is a loophole! It can and would be exploited. Imagine, a guy buying a "used" yacht, no taxes.

[Jimmy Higgins]

"Isn't discretionary" doesn't mean it can't be cut. It just has to be recategorized.

MichaelYes, Social Security, Medicare and interest on the deficit... good luck with that.

[Puddleglum]

"However, the solution that no one wants to talk about is cutting SPENDING, not taxation."

I've got the candidate for that:

http://www.youtube.com/watch?v=qI5lC4Z_T80

http://www.msnbc.msn.com/id/17200494/site/newsweek/

[James Peter]

I really don't understand the problem with income tax. How is it invisible? Do people not check their payroll statements? Don't US payroll statements include how much tax you're having deducted? Don't those rather large numbers have an impact on you? I know when I was younger and I found one of my Dad's end of year tax reports (paying a whopping $30,000 in income tax alone - and remember we have high VAT over here too) it really drove home to me how much we paid for taxes.

How is having the amount of tax you've paid that month and year given to you every month 'invisible'? And if you don't have that now then surely the simplest way to stop income tax being invisible is to start handing out itemised payrolls.

[Ryokan]

I hate to say it, but I agree with what Jimmy said, in principle. If the feds don't get their money through income tax revenue, they'll get it another way.

Bush's tax cuts actually increased revenue because of the Laffer curve (I think that's what it's called anyway), so a tax cut doesn't always mean less revenue.

However, the solution that no one wants to talk about is cutting SPENDING, not taxation.

Michael

The Laffer curve doesn't work when taxes are low as they are in the US. We are on the wrong side of the peak.

[Ryokan]

I don't dislike the income tax. I dislike all the shelters, loopholes, deductions, etc. But taking 25-30% of everyone's income or something would be fine with me.

[themuzicman]

The Laffer curve doesn't work when taxes are low as they are in the US. We are on the wrong side of the peak.

Actually, the most recent tax cut proves otherwise. Taxes were cut, but revenues increased.

Michael

[Jimmy Higgins]

Actually, the most recent tax cut proves otherwise. Taxes were cut, but revenues increased.

MichaelRevenues went up, but it has not been established that the tax cuts had any affect. It is more likely that the really low interest rates had a much larger impact, seeing that as the interests have increased, the economy has slowed down.

[Crow]

However, the solution that no one wants to talk about is cutting SPENDING, not taxation.

Michael

Agreed.

However you slice and dice it, if you want a higher level of services from the government, it's going to take more money. The monetary resources fairy is not going to drop us the means to provide these services. The means will come from us.

Drop social security, medicare, medicaid, a boatload of government programs, national parks, etc, and taxes would be less.

You want a lot, you're going to pay a lot. If you want the same services that were available in 1880, you'll have fewer services and pay much less.

Most people want to pay fewer taxes. That is only possible if one has fewer services. There's not much of a way around that. Shifting which of your pockets the money comes out of isn't going to decrease the cost of the things we demand.

[joel]

I don't dislike the income tax. I dislike all the shelters, loopholes, deductions, etc. But taking 25-30% of everyone's income or something would be fine with me.
And you call yourself a libertarian?

Muz, 2/3's of our budget isn't discretionary. Of the 1/3 remaining, half goes to the military. ...People complain about $10 million spent here or $160 million spent there, when the big huge ape in the room (the military) is what is the big spending problem.
So 1/6 goes to the military. Compared to 2/3 non-discretionary. And you think the millitary is the huge ape? No, it's medicare, social security, and interest on the national debt. (Interest on the debt is around 15% of total spending, close to that of the military) I say phase out social security and medicare, use the surplus to pay off the debt, and then cut taxes by 2/3. This will reduce government spending from about 25% of the GDP to about 8%. Many more things could be cut beyond that.

[nomad]

I like the fairtax in principle (at least it's far less complicated than the current income tax, and far less political). I think muz is mostly right though (not completely sure)... I think we can ignore a 6-7% tax, but when it jumps to 28% (the current proposal is right around there if I am not mistaken) people will probably notice. But maybe not. At least he is right... at the end of the year, I do my taxes, I know exactly how much I've paid in income taxes. With the fairtax, finding this out would be a lot more difficult and require a lot more record keeping.

Or would it? One principle of the fairtax is that you pay the fairtax on *everything* - not just luxuries and consumables, but food, your utility bill, i think even on your rent. So maybe all you have to do it: I made $X this year, I have $Y left, I paid ($(X-Y) * 28%) in tax.

My main concern about the fairtax has nothing to do with the tax itself; I think it's a great idea and is very well designed, imho. My concern is that it's 'fragile' because of this - the fairtax really only works well if it is adopted exactly as shown in the book. It has careful provisions to avoid things like politicization. And the potential time bombs (such as paying the tax on food, and its effect on the poor) are taken care of with a 'pre-payment' of the tax to everyone each month (has the same effect as not taxing the first $XX of income, but done differently).

But I'm not sure how resilient it will be in the face of political pressure. If political groups pressure Congress to vary the sales tax rates by product, not only does it degrade the value of depoliticization of the tax, but it is much more damaging to the fairtax concept than just that. Taxing corporations, which isn't in the original, will be someone else's 'great idea' that will greatly harm the entire concept of the fairtax as well. Some barriers against this are built into it, but it is obvious that the fairtax was developed by optimists.

Second thing is that I'm not sure how you would do a mortgage deduction, since there aren't supposed to deductions of any kind. I'm not sure how I feel about the mortgage deduction (it means more people can afford houses, which reduces the barrier between the middle and upper classes, and sharpens the barrier between the very poor and the rest of america (*)), but I am going to speculate that it had a lot to do with the large rise of home ownership and (fairly directly) the large rise in home prices as well. And in fact it has been proposed that the mortgage interest deduction has no effect on ownership rates, but merely increases the prices paid for homes, shifting the investment away from other things. (and probably also making foreign investment that much more expensive and therefore unattractive, a side benefit?) Removing will return home prices to their 'natural' value, but what kind of effect will this have? However, removing the mortgage deduction might have side benefits (**).



(*) - here's a good article arguing for the end of the mortgage deduction. http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=print

(**) - a proposal that high home ownership leads to higher unemployment: http://www.slate.com/id/2161834/

[nomad]

one confusion (lot posted since I last read!) - under the fairtax, there are *no* exemptions for sales tax. Everyone pays, on everything. No food exemptions, no poverty exemptions. Instead, everyone gets a pre-payment each month for whatever the tax would be on items up to the poverty level. This isn't variable, because the tax is on everything - i.e., if the poverty level was $20,444 (family of four), if they spent all of it every month, they would be paying 28% of that in taxes (5724.32) per year (because the tax is paid on *everything*). So they would get a payment of 5724.32 per year back from the government, or about 477 dollars each month. So while they pay it at the register, they get it back - in advance - from the government each month, effectively paying nothing.

Note that this would given to everyone... even though I make far more than the poverty level for my family size, I would get the same benefit every month. This sounds unfair, but the current income tax code also makes the same allowance (Someone who makes only $16k a year pays no taxes, but I also pay no taxes on the first $16k I make, even though I do on what I make above that).

There are still some 'holes' here - the poverty level is obviously higher in New York City or Silicon Valley than in Columbia (SC) where I now live, they are much more expensive places to live - but overall it's not that complicated. Note also that this is on a 'family' basis - so the 16 year old working at Abercrombie & Fitch for spare cash but who doesn't really have any 'life' expenses (not paying rent/utilities, parents supply food, etc) doesn't pay any income tax today, but would pay the fairtax, because his/her 'exemption' would already have been taken care of.

About the 'used' yacht - Sales tax has the same sort of problems now, with potential abuse, but I don't think it's that widespread. The kinds of things where it would be attractive the break the law are also the kinds of things where the amounts involved are enough to attract the attention of whatever is left of the IRS. Fair tax has a 'first sale' doctrine, where the sales tax is paid exactly once at the last point of sale; transfer from a manufacturer, to a distributor, to a reseller is handled exactly as today, with sales tax exemptions.

[WinterStag]

While I'm not completely convinced by it I think the Fair Tax deserves to be looked at seriously.

I would take a look at states like Tennessee who depend purely on Sales Tax rather than income tax and the massive problems it's caused for their government and it's ability to provide services. Somewhat cynically though I imagine that the Libertarians supporting the Fair Tax view this as a benefit rather than a drawback.

[Timothy Leary]

I would take a look at states like Tennessee who depend purely on Sales Tax rather than income tax and the massive problems it's caused for their government and it's ability to provide services. Somewhat cynically though I imagine that the Libertarians supporting the Fair Tax view this as a benefit rather than a drawback.

The method by which a state extracts taxes does not determine the amount of total tax money.
The rate does.

There are still some 'holes' here - the poverty level is obviously higher in New York City or Silicon Valley than in Columbia (SC) where I now live, they are much more expensive places to live - but overall it's not that complicated. Note also that this is on a 'family' basis - so the 16 year old working at Abercrombie & Fitch for spare cash but who doesn't really have any 'life' expenses (not paying rent/utilities, parents supply food, etc) doesn't pay any income tax today, but would pay the fairtax, because his/her 'exemption' would already have been taken care of.

I would imagine that if the fair tax were enacted, states would follow suit, and make the neccessary adjustments.
I.e. NY would have its own sales tax, and could make prebates, etc.

[WinterStag]

The method by which a state extracts taxes does not determine the amount of total tax money.
The rate does.

Not solely no, and it isn't just the total amount of money that is the issue. It's other things like the cost involved in collecting taxes, that it comes in in a much irregular manner (ie: spending and therefore collection of taxes based on it has a lot more peaks and valleys throughout the year than one based on income tax).

[DesertBerean]

What, 2/3 thirds of spending is non-discretionary I believe. Of the remaining 1/3, what... 50% goes to the military? And people complain about cutting out the pork! Don't talk to me about the military! We get hit with budget cutbacks so Congress can fund the non-discretionary stuff. I don't know where we currently are right now thanks to the heel dragging on the Hill, but we've felt the cutbacks pretty badly here.

[Timothy Leary]

It's other things like the cost involved in collecting taxes, that it comes in in a much irregular manner (ie: spending and therefore collection of taxes based on it has a lot more peaks and valleys throughout the year than one based on income tax).

Easy solution: Collect taxes for an entire year. The money avaliable then becomes the max. budget. Heck, that might be a good idea no matter the method the govt steals from us.

Don't talk to me about the military! We get hit with budget cutbacks so Congress can fund the non-discretionary stuff. I don't know where we currently are right now thanks to the heel dragging on the Hill, but we've felt the cutbacks pretty badly here.

I think Jimmy is thinking about the War in Iraq, in paticular.

[nomad]

Sales taxes only has worked really well for Florida, but Florida has a larger than usual tourism industry - relying on sales taxes effectively pushes the tax burden off of residents and on to visitors.

That is one thing that I'm not sure which way it goes - foreigners that don't pay income tax would pay the sales tax, but American trips to the French Riviera would be taxed under income tax, and not taxed under the fairtax (except for the initial plane ticket, probably not a large part of the cost). Hmm, this would require some serious beefing up of the customs department as well...
'These expensive fur coats? Yes, I've always had them....' Only those who could make personal trips outside the country could benefit from that. I don't really know how much of an effect it would have.

[Timothy Leary]

Sales taxes only has worked really well for Florida, but Florida has a larger than usual tourism industry - relying on sales taxes effectively pushes the tax burden off of residents and on to visitors.

I disagree. I would look at it a different way.
The tourism is a plus, a boost to the tax revenue that would otherwise be collected.
By going with a sales tax, govt operations will be more closely tied to the state of the economy, forcing the powers that to be more responsible about economic policies.

That is one thing that I'm not sure which way it goes - foreigners that don't pay income tax would pay the sales tax, but American trips to the French Riviera would be taxed under income tax, and not taxed under the fairtax (except for the initial plane ticket, probably not a large part of the cost). Hmm, this would require some serious beefing up of the customs department as well...
'These expensive fur coats? Yes, I've always had them....' Only those who could make personal trips outside the country could benefit from that. I don't really know how much of an effect it would have.

Sorry, maybe I'm having a blonde moment here, but you lost me. What the heck to trips to France have to do with the subject?

[casaba]

(I'll admit I skipped page three but I thought I'd throw in...)

As mentioned earlier, a dramatic change in taxation method, income to sales, would be quite disruptive to the economy. I imagine a much simplified income tax as a far preferable option.

My idea (sorry, I haven't seen it elsewhere) is a flat* percentage tax on all income above the median income--and I mean ALL income, be it salary, interest, capital gains, inheritance. The percentage would be relatively high, say 40%. While I have not calculated hard numbers for such a plan, considering that 6% of the population earns a third of the income, I imagine that it would easily raise revenue equal to the current system, a system which taxes the poor (usually under the excuse "for fairness") and has countless loopholes to avoid payment. As far as calculation of the median income, I would tend toward 'median income per household member over 14 years of age', which is about $25K. So a household consisting of a couple earning up to 50K would pay no income, while those earning more would still have $50K of untaxed income.

While I just ridiculed the claims of 'fairness' in taxing the poor, I could imagine keeping the Social Security taxes relatively unchanged, if for nothing else, to satiate those intuitive but misguided perceptions of 'fairness'. Social Security is a rather high tax (for most people it is effectively around 15%, though it goes down at higher incomes) that continues to be one of the most successful of American government programs. With the minor tweak of eliminating the maximum taxable income, the program would be able to continue prop up the American economy while keeping the elderly out of poverty for the rest of the century. (Last I looked into it, admittedly 5 or 6 years ago, in its current state, Social Security will still hold up the economy for another 20 years, while supporting the elderly for maybe 40 years--far greater solvency than any other government program. The elimination of the cap would not only keep the program in surplus, thus propping up the economy, and enable the payments to continue for the foreseeable future but to also to increase payments so as to better reflect inflation.)


*It's always amazed me how people jump on the 'flat tax' band wagon thinking it is somehow fairer than a progressive tax. It IS a progressive tax: the more you earn, the more you pay. The truly non-progressive tax would be a flat FEE. The fee necessary to fund a government funded at even a fraction of the current level would leave a sizeable portion of the country penniless. The impossibility of such a fee should show those fervent libertarians how dependent on society we all are--especially the most wealthy. The idea that somehow the wealth each of us owns is due entirely to our own doing is where Ms. Rand's theories fall apart. The wealth we gain is because we have a stable society and such stability can only be achieved with a proactive government funded by the wealth creation it enables.
...sorry for the rant; I was a troll for four years on my university's Objectivist/Libertarian mailing list, by which I mean I read the exchanges but never posted myself, not so much because of fear but because of disbelief in what I was reading...

[joel]

As mentioned earlier, a dramatic change in taxation method, income to sales, would be quite disruptive to the economy.Only because taxation and government spending is so high. We'll have to cut both dramatically before switching systems.


Social Security ... continues to be one of the most successful of American government programs. Which doesn't speak well of government programs in general.


The truly non-progressive tax would be a flat FEE. The fee necessary to fund a government funded at even a fraction of the current level would leave a sizeable portion of the country penniless.For that reason, we need to drastically cut government spending before switching over to a flat fee.


The idea that somehow the wealth each of us owns is due entirely to our own doing is where Ms. Rand's theories fall apart. The wealth we gain is because we have a stable society and such stability can only be achieved with a proactive government funded by the wealth creation it enables. Ms. Rand's theory is that we do need a strong proactive government, but that it must be limited to protecting individual rights. That is all that is needed to provide the necessary stable society.

[nomad]

I disagree. I would look at it a different way.
The tourism is a plus, a boost to the tax revenue that would otherwise be collected.
By going with a sales tax, govt operations will be more closely tied to the state of the economy, forcing the powers that to be more responsible about economic policies.


Either way, a lot of the sales taxes paid are coming from people that don't live in the state, probably not a majority but a sizeable chunk. Relating to the below....


Sorry, maybe I'm having a blonde moment here, but you lost me. What the heck to trips to France have to do with the subject?

The 'fair tax' sales tax only applies to first sale items, sold within the United States.
In most cases, the US would be a tax haven for corporations. But for individuals, it could work the other way on occasion.

Suppose I decide to vacation on the French Riviera for a month. Suppose I spend $20,000 on that vacation (I have no idea what such a vacation would cost, I've never even been outside the country; if it were me, i'm sure it would be much less, but I am assuming someone with millions who would pay $500 a night for a room, expensive dinners, first class tickets, etc.). With the fairtax, the US gets exactly... _0_ of that amount. Well, maybe a little on the airfare. It isn't spent here, so it isn't taxed here.

With the income tax, this $20,000 would have been taxed as income instead. I suppose this is fair, since you were not even in the US at the time, but it's different.

In addition, suppose I buy an expensive fur coat for (say) $2,000 somewhere overseas. And then I come back to the US. Under the fairtax plan, all items coming into the US would incur the 'first sale' tax on it. Let's assume we can know the actual sale price of an item and tax it correctly (customs). But this fur coat is in my suitcase. How do you know I didn't take it with me when I left? Now, you would have paid the VAT in the other country, this is true. But in the US, you would have paid nothing. I suppose this is fair as well, for the same reasons, but it does leave money earned in the US and spent on consumables untaxed. This is just like buying stuff over the internet and avoid local sales taxes.

Part of the appeal of the fairtax is that many people who come to the US and spend money in the US, but don't live here, would not pay income tax but they will pay sales taxes. What's implicit in this though is also that when Americans spend outside the country, they don't pay taxes here.

I think this is actually a good thing when done fairly, but not a good thing when done unfairly.
If there were only sales taxes and you only got taxed when you spent money, that would work pretty well and cover the above cases.

For example, Oregon has no sales tax, and Washington has no income tax. This leads to an interesting situation for Washington for those living near the border (this works out OK, because the largest city on the border, Portland, is on the Oregon side, but it could easily have been reversed).

Now, let's say the person living in Oregon goes to visit his family in Washington. He's already been taxed on his income by the state. When he gets to Washington state, he will be taxed again on his hotel, meals, and anything else he buys while there. A bad deal for the guy from Oregon, but a good deal for Washington state - they get tax money they can spend on their residents, which isn't burdening their residents at all. The Wash resident gets social services he doesn't even have to pay for himself. What a deal!

Or is it? It's good for the Wash resident in more than one way.... he isn't taxed on his income. When he goes and visits his family in Oregon, he isn't going to be taxed on his hotel, food, or anything. He isn't taxed at all for that visit. Pretty nice huh? In fact, since there's no sales tax, he figures he'll pick up a laptop and a flat-screen TV while he is there, to save on the sales tax he would have paid, and bring those back to Washington state.

Oops. Now, while this is great for the resident, it isn't so great for the state - if enough people do this, they will lose out on a lot of revenue they should have gotten. And this avoidance mostly benefits the already-wealthy - after all, a guy barely making his mortgage payment isn't going to be buying a laptop or a flat-screen TV, let alone a trip to Oregon to make it happen. Some diligence at the border (similar to customs) might catch some offenders, but in general it's difficult to guard against.

The rich have other ways to avoid this as well... but I think they can in any case. The rich guy buys a yacht. He parks it in a marina off of Manhattan Island, but never pays taxes on it. After all, officially it's registered in the Bahamas - that's where he bought it. And it isn't on US soil, it's just here 'temporarily'. Or he just leaves it in international waters and ferries out to it (of course, when the pirates come, the Coast Guard just sits back and laughs too).

Just thought experiments. I still think that the fairtax is a good idea, I just don't know which way this effect would work. The book is quick to point out how this could work positively, but completely neglects to mention the possible downsides.

[joel]

it isn't so great for the state - if enough people do this, they will lose out on a lot of revenue they should have gotten.It seems that a lot of people make the mistake of thinking of taxes in this way: as if it is money that the government "should have gotten" as if the people's wealth belongs to the government or the government somehow deserves it.

[nomad]

When I say 'should have gotten', I mean it in a very strict, technical definition, and that is this: If the government passes a law that is supposed to cover a certain class of transactions with a fee or tax, and some of those transactions avoid the tax merely because it is easy to avoid, that is money they 'should have gotten'. If the tax is intended to cover consumption within the state, and consumption with the state is easy to avoid, that fits within the definition.

that creates difficulties in forecasting. Let's say that I am a trim and efficient government who is implementing exactly the social programs requested by my constituents (a perfect world which doesn't exist). My constituents agree that this much money should be raised. Now, I know about how much this will cost (give or take population migration, inflation, and other things which are (hopefully) relatively minor), and want to design a tax proposal to raise exactly this amount. A consumption tax makes this (at least possibly) straightforward: If I need $X, and the total consumption of the state is $Y for the year, then the tax rate is (X/Y * 100)%. But if I can't forecast how 'honest' my population are, I can't know how much I will get less than this because of tax avoidance. Therefore, I need to raise the tax rate.

In general, the tax protestor is an American hero, but in general when the rich can avoid taxes easier than the less rich, we generally consider that to be a bad thing. This sort of tax avoidance is dependent on mobility, which would affect primarily the middle class (the poor don't pay much taxes anyways, and the rich can avoid the taxes). At least, I think so.

[joel]

I think we probably agree in general, and I'm probably just nitpicking, but...

When I say 'should have gotten', I mean it in a very strict, technical definition, and that is this: If the government passes a law that is supposed to cover a certain class of transactions with a fee or tax, and some of those transactions avoid the tax merely because it is easy to avoid, that is money they 'should have gotten'. If the tax is intended to cover consumption within the state, and consumption with the state is easy to avoid, that fits within the definition.But there's nothing wrong with avoiding it. If the state puts a high tax on alchohol or cigarettes, there is nothing wrong with someone abstaining from them for the purpose of avoiding paying the tax.


that creates difficulties in forecasting. ...My constituents agree that this much money should be raised. Now, I know about how much this will cost (give or take population migration, inflation, and other things which are (hopefully) relatively minor), and want to design a tax proposal to raise exactly this amount.That's why a flat fee would make more sense.


In general, the tax protestor is an American hero, but in general when the rich can avoid taxes easier than the less rich, we generally consider that to be a bad thing.Again, flat fee for the win--no loopholes for anyone (rich or poor) to jump through. (By the way, would you say that it is also bad if the less rich can avoid taxes more easily than the rich? Why or why not? Would such a situation be better or worse than a system that is equal for everyone?)

[nomad]

But there's nothing wrong with avoiding it. If the state puts a high tax on alchohol or cigarettes, there is nothing wrong with someone abstaining from them for the purpose of avoiding paying the tax.


Of course there's nothing wrong with it. I'm not saying it's immoral for you to take advantage of tax loopholes by any means. I am saying a system that encourages that sort of game is not a good thing.

Your example isn't exactly what I was getting at though. If the state puts a high tax on alcohol or cigarettes, it covers any transaction involving final sale and consumption of alcohol or cigarettes. If you avoid the tax merely by not buying alcohol or cigarettes, you did not participate in any transactions involving alcohol or cigarettes. Since there's no transaction, there's nothing covered by state law and nothing the state 'should have had'. But if, for instance, you were a liquor store owner, and put your resale stamp on your own personal liquor purchases for instance, even if it is sort of legal (I am not sure how that works really), it is money that the state 'should have had' since the law covered final sale and your consumption was the 'final sale'.

Again, flat fee for the win--no loopholes for anyone (rich or poor) to jump through. (By the way, would you say that it is also bad if the less rich can avoid taxes more easily than the rich? Why or why not? Would such a situation be better or worse than a system that is equal for everyone?)

Yes, it would be worse. Any exceptions or variance, i.e. a social inequality, is a 'broken window' that encourages corruption. But that's not to say that I believe that the taxes should fall equally on the poor. I do not believe that we should seek to ensure that everyone has the same level of wealth. I do not even think it is desirable. But I do think some level of social equity is desired. I would like to find a society where everyone, even if they are eating at a subsistence level, doesn't also have to worry about their personal safety as well. (I read something on this in the last Christopher Lasch book I was reading; I'll dig it out).

Are you familiar with the Princeton good samaritan experiment? (I pulled this from Malcolm Gladwell's _The Tipping Point_, which has lots of anecdotes like this, and it's roughly quoted from there). It addresses context as a part of behavior. Two Princeton university psychologists decided to conduct a study inspired by the parable of the good samaritan at the Princeton Theological Seminary. They met with a group of seminarians, one by one individually, and asked each one to prepare a short, extemporaneous talk on a given biblical theme, then walk over to a nearby building to present it (about 10 blocks IIRC, not far). Along the way there was a man slumped over in the alley coughing and looking homeless. Also, before the meeting, they gave students a questionnaire about why they had wanted to study theology. They had two different themes - some students were asked to speak on the relevance of professional clergy to the religious vocation, others were given the parable of the good samaritan. Finally, for some of the students, as they were leaving, he would look at his watch and indicate they were running late and needed to get moving; the other group was told that it would be a few minutes before they were ready, but they might as well go and head over.

So two main variables: some were presenting a speech on the good samaritan, others on an unrelated clergy in religion topic; some were told they were running late, others were told they had a little time and didn't need to hurry.

So, who were the ones that stopped? You would probably guess that the ones who were speaking on the good samaritan would have stopped the most. Almost anyone would, that's just common sense. But you'd be wrong. In fact, that made almost no difference. Indeed, on several occasions a seminary student literally stepped over the victim as he hurried on his way. What did make a difference is whether the student was in a hurry or not. For those in a rush, only 10% stopped to help. For those not in a rush, 63% stopped to help.

I know that what I have, God has given me. But it's more than just money, it's the ability to have being righteous be easy. You know that old moral dilemma about is it OK to steal bread if you're hungry? I never have to make that choice. My easier life makes it easier to be nice to my kids, to love those around me. It's easier to be generous when your basic needs are met.

So I do believe in progressive taxation. The rich get far more benefits from the government anyways - how does your average poor person benefit personally from enforcement of contract law, for instance? But more because I believe it is part of any pragmatic solution for alleviation of some kinds of crime and other social ills. I don't necessarily even believe it's necessarily welfare - NYC sharply decreased crime on the subway by just cleaning it up and putting some maintenance towards 'line jumpers'. It wasn't some sort of direct payment, but it certainly raised the standard of living for those who rode it (which was a considerable number of people).

[Jimmy Higgins]

Don't talk to me about the military! We get hit with budget cutbacks so Congress can fund the non-discretionary stuff. I don't know where we currently are right now thanks to the heel dragging on the Hill, but we've felt the cutbacks pretty badly here.Why not? We spend over $400 billion on the Pentagon. We can't afford that!

I think Jimmy is thinking about the War in Iraq, in paticular.Actually no. The "War on Terror" money is on top of the $400 billion annual, we give to the Pentagon and Department of Defense.

[joel]

Your example isn't exactly what I was getting at though....
Right, it's the difference between tax evasion and tax avoidance. The former is illegal, the later is not. Avoiding an in-state sales tax by purchasing in another state is not illegal. Neither is it dishonest. On the other hand, If the state had an import tax on that out-of-state purchase, and you didn't pay, that, then that would be illegal. However, I think such state tariffs are unconstitutional.


But that's not to say that I believe that the taxes should fall equally on the poor.
...
The rich get far more benefits from the government anyways - how does your average poor person benefit personally from enforcement of contract law, for instance?This is backwards thinking. First of all, wealthy people tend to benefit society as a whole more than poor people; they should be rewarded for this, not penalized. Second we could stumble over ourselves all day trying to figure out what portion of the government protection of individual rights benefits such and such individual. How do you divide that up? Protection of individual rights creates a stable, growing society and benefits everyone. Might as well just divide the cost equally amongst everyone. As for the enforcement of contract law, first it benefits everyone directly, even a poor person who enters a contract to do x work in exchange for y. But it also benefits everyone indirectly. It allows those who are most productive to work to benefit society, by providing a plethora of beneficial goods and services.
As far as the burden of a flat fee on the extremely poor, I say cut spending, so it isn't a big burden. But if we can't do that, I could perhaps accept a tax that was proportional to income for people with very low incomes (and reaching zero tax at some low income level, like the current system), but a flat fee for most people.


I don't necessarily even believe it's necessarily welfare - NYC sharply decreased crime on the subway by just cleaning it up and putting some maintenance towards 'line jumpers'. It wasn't some sort of direct payment, but it certainly raised the standard of living for those who rode it (which was a considerable number of people).But it would be even better if the subway were privately owned. Then the owners would have the incentive to make it a clean and safe place, and to do so in the most efficient way possible.

[Jimmy Higgins]

Right, it's the difference between tax evasion and tax avoidance. The former is illegal, the later is not. Avoiding an in-state sales tax by purchasing in another state is not illegal. Neither is it dishonest. On the other hand, If the state had an import tax on that out-of-state purchase, and you didn't pay, that, then that would be illegal. However, I think such state tariffs are unconstitutional.What about buying on the internet where sales tax isn't collected? I know Ohio tries to recoup some of this money.

This is backwards thinking. First of all, wealthy people tend to benefit society as a whole more than poor people; they should be rewarded for this, not penalized.The rich aren't punished in the US. Their tax rate is the lowest in the industrialized world.

But it would be even better if the subway were privately owned. Then the owners would have the incentive to make it a clean and safe place, and to do so in the most efficient way possible.This would be just as great as privatizing airport security, where skimping and saving money is more important than making sure security threats don't get on the planes.

[nomad]

Right, it's the difference between tax evasion and tax avoidance. The former is illegal, the later is not. Avoiding an in-state sales tax by purchasing in another state is not illegal. Neither is it dishonest. On the other hand, If the state had an import tax on that out-of-state purchase, and you didn't pay, that, then that would be illegal. However, I think such state tariffs are unconstitutional.


Unconstitutional or not, nearly every state has such a law. And so it's actually tax evasion. But nearly impossible to actually enforce.


This is backwards thinking....


Well, we'll have to agree to disagree. That's the least important part of my view anyways. I do understand where you are coming from, but don't agree with it.


But it would be even better if the subway were privately owned. Then the owners would have the incentive to make it a clean and safe place, and to do so in the most efficient way possible.

Well, that wasn't even the point. Actually, yes, you are pointing out something useful there. But most of the buildings in NYC are privately owned, and that isn't always enough to motivate the owners to keep them up to basic code for the residents or tenants.

Also, you assume either (1) easy access to capital or (2) that it already exists. How do you get it built in the first place? Easy access to capital, i.e. debt, might be valid if you can prove it will make money, but infrastructure typically can't have that kind of precise analysis.

And there's the benefit of the commons. Can you run a road profitably? The US government - the ostensible owner of the Interstate Highway System - certainly isn't making money off it; with a few exceptions here and there, most roads haven't. And yet their magnifying effect on the US economy is well known. Compare with old Silk Road, for which trade is highly stilted due to all the private owners who want their fee for transport (I heard a story of a Turkish truck driver who said he had to pay almost $1000 equivalent in bribes and fees to get a truckload of goods from turkey across to china). Sure, some will do it, but it's a drag on economic growth.

Privatization might work when the benefits go to the same people who are paying for it - or at least it can be monetized to the owners effectively - but many public projects just aren't like that.

[joel]

What about buying on the internet where sales tax isn't collected? I know Ohio tries to recoup some of this money.Yes, I think some states try to get around this by means of a technicality: taxing all consumption (rather than importation), but exempting any consumption for which sales tax was already paid. This is effectively a tariff, and probably should be struck down by the courts.


The rich aren't punished in the US. Their tax rate is the lowest in the industrialized world.
Taxation is always a penalty.


This would be just as great as privatizing airport security, where skimping and saving money is more important than making sure security threats don't get on the planes.Those two things are not mutually exclusive. It is cost-effective to prevent people from crashing, stealing, or blowing up your property. It also brings in more customers if they feel safer there than elsewhere.

[joel]

Well, that wasn't even the point. Actually, yes, you are pointing out something useful there. But most of the buildings in NYC are privately owned, and that isn't always enough to motivate the owners to keep them up to basic code for the residents or tenants.Almost always that is caused by government intervention, e.g. rent control.


Also, you assume either (1) easy access to capital or (2) that it already exists. How do you get it built in the first place? Easy access to capital, i.e. debt, might be valid if you can prove it will make money, but infrastructure typically can't have that kind of precise analysis. I'm not sure what you are talking about. Everything involves resources and risk.


And there's the benefit of the commons. Can you run a road profitably?Yes, if there is the suitable demand for it, then it can be done profitably. If there isn't the suitable demand for it, then probably it shouldn't be done.


it's a drag on economic growth.The question though, is it a bigger drag on economic growth than the taxation and inefficient construction processes that are otherwise required?


Privatization might work when the benefits go to the same people who are paying for it - or at least it can be monetized to the owners effectively - but many public projects just aren't like that.The one place I agree with you on that is on the public infrastructure necessary to protect individual rights, such as defending them against foriegn hostility. That must be done publicly.

[nomad]

The question though, is it a bigger drag on economic growth than the taxation and inefficient construction processes that are otherwise required?


Hard to say. I would say you'd have to decide on a case by case basis. But many (most) infrastructure has boom effects far beyond the actual users of the infrastructure. A stadium seems like a major waste of money, which the owners of the stadium should pay for. And generally, they could, since the people who are using it are already paying for the privilege anyways.

But there's a magnification effect... many of those people coming to the stadium come from out of town. Not only do they buy stadium tickets, directly paying back the investment, but they go to restaurants. They stay in hotels. They buy stuff in shopping malls. They drive expansion in airline and/or port access. They decide to take their beach vacation at the same time, instead of somewhere else another time. They may come back. However, most of these people who benefit would not have been willing to contribute to the stadium in the first place.

Or, suppose a road across a river from a busy urban area to a sparsely populated exurb. It looks like not many people will use it, so it's a bad idea. But this can help relieve the effects of population growth, as well as drive growth in the new area, so it may end up being a public good in more ways than one.

For most infrastructure, the benefits are spread thinly over very many people, and so it's hard for someone who cannot reap the increase from the same many people to justify building it.

This isn't to say that all public works projects are shining examples of investment and efficiency; we know that is not the case. And certainly some major infrastructure projects (railroads in particular) were done by private investment, in a time when capital wasn't even as plentiful as it is now. But even then, most infrastructure is at least granted land, either straight out land grants or easements as done today.

Cities that grow without planning or proper investment of infrastructure become nightmares. Look at Atlanta. Its traffic is as bad as LA for hours around rush hour (I have done both).


The one place I agree with you on that is on the public infrastructure necessary to protect individual rights, such as defending them against foriegn hostility. That must be done publicly.

So you do agree then, that there are cases when both the benefits and the cost are spread across a large number of people, then it's worth doing publicly. And the scope of the investment required demands an aggregation that is easiest to do publicly. Not to mention the alignment of military and political goals is easiest done that way.

I just believe there are a few more examples that also fit that model.