Obviously, people really dislike paying taxes. And arguing about taxes, economics and politics is akin to a sectarian religious battle. Mix in American exceptionalism, a chosen nation, and what you have is highly combustible.After all, America was founded over a grubby spat over taxes. About eight months ago, Obama was in a hostage style quandary: Republicans threatened to block an extension of middle-class tax cuts unless the President folded and extended tax cuts for the wealthy as well. And the president gave in, giving the G.O.P. a victory.
The issue has always been whether higher taxes give rise to less work and more leisure, a kind of substitution effect. However, they also lower after-tax incomes, leading, somewhat theoretically to more work and less leisure which is known as the income effect.However, some studies, empirical studies, indicated that high taxes either did not substantially affect work effort and might even increase work effort among executives and the professional class.That is, people work as hard or even harder to recapture their previous incomes or to reach income goals. ..
Like animals trained to jump through circus hoops or leaping like trout at fresh bait, we try again , inexorably to avoid paying our allotted portion of sales and income taxes and some are willing to go to extremes to uphold the principle.This reticence is really a special instance of the more general trend, which is that people hate paying for things.Like pirated software, illegal downloads etc. But the fact that taxes get singled out in this way,almost as a scapegoat, and are capable of provoking such profound and passionate anger and resentment, is something of a social phenomenon, in particular one that has been appropriated by the Republicans.In the same way, many people think that having corporations pay taxes represents some sort of an alternative to having individuals pay taxes. So, taxing whether indirectly or directly is a question of nuance and public perception.
What sets the issue of taxation apart is the concept, made popular by successive waves of economists, that taxes are not just a personal inconvenience to the taxpayer but are also objectively bad for the economy. As a general claim this is simply false, but specifically in a guns or butter argument…
From Michael Ferguson at Polymathica:
229 House Republicans and 5 Democrats passed the Cut, Cap and Balance Act. It first cuts 111 billion from the 2012 budget. It then sets spending caps that require Federal expenditures as a percent of GDP to fall to 18% by 2017. Lastly, it sends a Balanced Budget Constitutional Amendment to the States for ratification. It is, of course, like nearly everything that comes out of Washington, a very poor idea.
Having said that, it does contain some good aspects. As I stated in my last post, we should cap our debt as a percent of GDP. However, rather than an arbitrary percent, it should be driven by the requirements of the triple A bond rating. Next, while I haven’t discussed it before, setting Federal expenditures as a percent of GDP is a wonderful communication tool between voter and representative. Read More:http://thefuture101.blogspot.com/2011/07/cut-cap-and-balance.html?spref=gba
The picture underlying this fallacy can be viewed as relatively straightforward, especially from the left. Government services, such as health care, education, national defense, seemingly “cost” us as a society. We are able to pay for them only because of all the wealth that we generate in the private sector, which we transfer to the government in the form of taxes. A government that taxes the economy too heavily stands accused of ruining the entrepreneurial spirit by disrupting the mechanism that generates the wealth that it itself relies upon in order to provide its services. Thus the government gets labeled as a consumer of wealth, while the private sector, the good cop, is regarded as a producer.The left will say this is confused. Their assertion is that the state produces exactly the same amount of wealth as the market, which is to say, it produces none at all. People produce wealth, and people consume wealth.The institutions, such as the state or the market, neither produce nor consume anything. They simply constitute mechanisms through which people coordinate their production and consumption of wealth.And so it goes. What happens is a battle then of Veblenian proportions over the invidious nature of how we consume…
Michael Ferguson:However, establishing a specific percentage in legislation, such as the proposed 18%, or any other percent for that matter, is a terrible idea. For example, one wold expect the percent to be lower in peace time than when the nation is at war. Recessions tend to increase demands for Federal expenditures while simultaneously lowering the GDP. Earned Social Security, as a percent of GDP is likely to first go up and then go down. Why should other government programs suffer or benefit because of it?
So, rather than a fixed percent, this metric should be used as a primary point of discussion. It is hardly a panacea, however. Almost surely, if the public discourse became couched in terms of the Federal government’s percent of the economy, legislators would attempt to move expenditures ‘off balance sheet’ or to the States. Still, it is better than the current state of affairs.Read More:http://thefuture101.blogspot.com/2011/07/cut-cap-and-balance.html?spref=gb
Michael Ferguson can be followed at The Future 101 blogspot and the Ploymathica Greoup on Facebook: A balanced budget is a very dangerous idea that, even if it were to pass the State Legislatures, would, like the eighteenth amendment, be repealed in relatively short order. To refresh our memories, technological unemployment creates deflation. Deflation is best counteracted by monetizing debt. Monetizing the debt to counteract deflation ‘earns’ deficit spending that can be used to retrain the displaced workers. We don’t want to create a Constitutional Amendment that would interfere with this very powerful tool….
…This, however, just kicks the can down the road. Is it enough? Is it too little? The debt ceiling, to be sure, will need to raised again and likely very soon. Are we any closer to a rigorous structure within which to have the next conversation? What is needed is a structure by which Congress and the President are forced to exercise fiscal responsibility consistent with the expectations of the investment markets and the rating agencies. If the plan, or one like it, passes, we will have lost any sense of urgency that may have been created by this crisis.
That can be considered either good or bad. On one hand, the sooner we start running the Federal Government’s financial affairs in a “state of the art” professional manner, the faster the various stakeholders will calm down. The markets will calm down. The rating agencies will calm down. The business community will calm down. The voters will calm down. On the other hand, getting it wrong just to get it done is just not acceptable.Read More:http://thefuture101.blogspot.com/2011/07/cut-cap-and-balance.html?spref=gb
Joseph Heath:simply by “following the money” to see where it ultimately comes from, or where it ends up. Yet it is also important to have the right sort of “picture” of what these institutions are and what they do. Management theorists have, in recent decades, taken to referring to the firm as a “nexus of contracts”. The firm is nothing more than a mechanism for organising a very complex set of transactions between individuals…
…The state should be thought of in exactly the same way, at least with respect to its economic role. The primary difference between the state and the corporation is simply that membership in the former is universal and compulsory, while in the latter it is not. Because of this non-voluntary aspect, it would be misleading to call the state merely a “nexus of contracts”, even though that is, in a sense, what it is. For now, let’s call it a “nub of transactions”….
…The state, as people on the right never tire of reminding us, grew spectacularly over the course of the 20th century as reflected by increased spending on welfare, unemployment, pensions, health, and housing, as a percentage of GDP. As far as the economy is concerned, the state went from being a bystander to being the single most important actor.
The standard way of distinguishing this new state-as-economic-behemoth from its precursor institution is to call it “the welfare state”. This is not a great term, insofar as it suggests that handing out welfare cheques is one of the major functions of modern government, which typically is not the case. A better idea would simply be to rebrand it as something else, like “the public goods state”. Read More:http://www.theglobeandmail.com/news/arts/books/article1148923.ece
Paul Krugman:Now, there are good reasons to believe that the G.O.P. isn’t nearly as willing to burn the house down as it claims. Business interests have made it clear that they’re horrified at the prospect of hitting the debt ceiling. Even the virulently anti-Obama U.S. Chamber of Commerce has urged Congress to raise the ceiling “as expeditiously as possible.” And a confrontation over spending would only highlight the fact that Republicans won big last year largely by promising to protect Medicare, then promptly voted to dismantle the program.
But the president can’t call the extortionists’ bluff unless he’s willing to confront them, and accept the associated risks. Read More:http://www.nytimes.com/2011/05/16/opinion/16krugman.html?_r=2&hp