RogerDodger wrote:
> On Mon, 14 Apr 2008 19:12:26 -0400, Les Cargill
cfl.rr.com>
> wrote:
>
> It's the entirely typical situation, to the point of being *universal*
> because economic activity continues *to the margin*.
>
Indeed.
>
> Increasing tax on something is just the same as increasing the *price*
> of it.
>
Exactly. And you've provided absolutely no information about the
elasticity of demand in any case. This is why I am saying that
for any given tax, there may or may not be a significant
decrease in demand.
>
> Wrong -- because deadweight loss results from the first dollar of any
> tax, there is no possible way the government can avoid it.
>
We don't live in Medevial Iceland. There is countervailing
jiggery-pokery all over the place. We live in a very managed
economy. There's only "deadweight loss" on one "plane" of
the economy - the producers and consumers of that particular good or
service.
> Of course politicians can indeed be remarkably thick about the
> economic cost of taxes -- see again the luxury tax on boats that
> devastated the boat making industry. And there's no shortage of
> examples of politicians trying to tax or regulate the market away.
>
> But more often, politicians *don't care*. Politicians just want to get
> their tax revenue in the *politically* most expedient way -- not the
> economically most expedient.
>
Yup.
> And the deadweight loss cost of taxes, when it is only up to moderate
> (below industry destroying) levels, is largely invisible politically,
> because nobody pays it in tax collections.
>
I couldn't agree more. And this will never, ever change.
> That's the political perversity of it. It's far *more costly* to the
> economy than actual taxes collected which get recycled through the
> economy through govt spending. Yet people only see the latter, because
> those are the only taxes they write out checks for -- they don't write
> out checks for deadweight loss. Unemployment, slow growth, all that's
> just fate, they think.
>
> Take you, for instance.
>
> You personally suffer much more loss from the deadweight loss cost of
> taxes than you do from taxes collected from you that are recycled to
> buy a $600 hammer for the Pentagon -- but while the latter may anger
> you when you read about it, you don't even believe the former exists!
>
I am pretty sure I can't tell what the world would look like *without*
all the interference that goes on. Too many factors would change for me
to be confident in the computability of a zero-tax world.
> Not for all the econ and public finance textbooks in the world, nor
> even the papers you can read right here in this thread linked to the
> NZ Treas.
>
> The total cost of taxes equals tax revenue collected, $T, + deadweight
> loss cost, $X, with the latter rising with the square of the tax rate.
> For the record, Martin Feldstein, president of the National Bureau of
> Economic Research, estimates the deadweight loss cost of the US income
> tax to be $1 per $1 collected. So for an extra dollar of tax to be
> beneficial it must be spent to provide >$2 of benefits -- covering
> both the $1 deadweight loss + the loss suffered by making the original
> recipient of the income unable to spend $1 of it.
>
> With income tax figuring to rise 50%% in the forseeable future on
> current law to service the boomers, we can figure its deadweight loss
> to rise by the square -- 125%%.
>
Clearly, none of those things will actually happen. There will be a
very circuituitous rerouting of funny money to retirees or to
medicial coops to cover this.
>> In the previously mentioned Canadian cig. tax, they dropped it to where
>> the black market greatly subsided. Oddly enough, government too
>> can act as an income-optimizing organism...
>
> Optimizing income for whom? ;-)
>
For the government itself.
--
Les Cargill
