Archive | November, 2011

So Much Misinformation, So Little Time…

2 Nov

Kyle Trowbridge has posted the standard hodge-podge of Austrian-school misinformation about taxes here:

> Broadly speaking, taxes can be broken into three types: consumption, income, and wealth.

Actually, there are just two types of taxes: those that confiscate privately created value for public purposes (i.e., virtually all our current taxes), and those that recover PUBLICLY created value for public purposes rather than giving it away to private interests as a welfare subsidy (i.e., taxes on government-created and -enforced privileges like land titles, corporate limited liability, broadcast spectrum allocations, IP monopolies, resource extraction rights, utility and cable monopolies, private banks’ privileges of issuing debt money, etc.).

> Taxes on wealth/net worth, inheritance, gifts, capital gains, and property all are levied on an aggregate of saved wealth,

No.  “Saved” wealth implies wealth that has been earned but not spent, and is available to be invested in productive capital.  In reality, the value of many assets, including those listed above, is simply the present value of what the owner expects to take from society in the future and not repay in taxes.  It’s no more “saved wealth” than the economic value of a protection racket or a drug dealer’s turf is saved wealth.

> Likewise, property taxes charge people/businesses a fee based on all real property (land, buildings, machinery, wells, etc. and all permanent improvements on these items). Not exactly a good incentive for increasing a factory size, building new offices, expanding a farm, etc.

In fact, property taxes are two opposite taxes, of the two types identified above: a tax on the privately created value of improvements, which measures what the owner is contributing to the wealth of the community, and a tax on the PUBLICLY created unimproved value of land, which measures what the community is contributing to the wealth of the landowner.  Taxing the former does discourage productive investment in improvements, but taxing the latter stimulates MORE productive investment in improvements, as the owner must either use the land productively, sell it to someone else (who will only be interested in buying it to use it productively), or lose money to the tax.

> Savings are what drive economic growth.

No, devotion of purchasing power to productive investment drives economc growth.  The proof of is in the last few years as US corporations have made huge profits and saved huge stashes of cash, but the economy is stagnant because they are not investing the money productively.  Saving — hoarding purchasing power — does nothing whatever to drive economic growth.

> So it would seem any tax that effects saving as little as possible would be preferred. Thus, wealth and income taxes should absolutely be scaled back or abolished, even if it means replacement by sales taxes or hikes in said rates (obviously not ideal).

Wrong.  A tax on savings would stimluate MORE productive investment, as owners of cash hoards would have to put their funds to work to avoid losing money to the tax.  That is why inflation is highly stimulative: people know they have to spend their money or invest in something productive enough to earn a positive return, or lose purchasing power.

> Start with trying to repeal your property taxes,

Nonsense.  Reducing (let alone repealing) property taxes is economic suicide, as California has proved since it passed Proposition 13 in 1978.  Look at the US states with the highest property tax rates, like NH, NJ, WI, TX and CT, and you will see that their economies are better than the states with the lowest property tax rates, like LA, MS, AL, CA and MA.  Proposition 13 was the greatest public policy blunder committed by any state since the Civil War.

> then work on income taxes, then we can move on to abolishing the state.

People who advocate repealing property taxes are interested in increasing the state welfare subsidy to landowners, not in abolishing the state.