Payroll vs. VAT (consumption) tax

There is an excellent discussion going on over at Mankiw's place regarding the relative effects of payroll vs. consumption taxes on tradeoffs like labor/leisure, spend/save, etc. Some of the comments are particularly thoughtful and in-depth.

Property Taxes skyrocket in Indiana - time for a Fair Tax

I just got my property tax bill last week. It jumped 70%. That is pretty typical for most that live in my county - though some unfortunate souls just a couple miles south of me saw their taxes rise by 200% or more! Now the people are up in arms.

I have said it before and I'll say it again, we need to get rid of hyper-inefficient forms of taxation like that of property, corporate income, and payroll taxes. We need to support the more efficient tax on lifetime wealth - that is - the sales tax. Why disincentivize someone to own a home? Why disincentivize a company to purchase a new factory or certain types of equipment? Why should corporations have to pay taxes, and then have their owners turn around and pay taxes? Why should people be burdened with form after form after deduction after exemption, etc.... What can we do to ease the US's obsession with consumption? What can we do to increase overall investment and reduce interest rates in the US? What can improve our trade balance without threatening countries like China? What......what..........what other than a sales tax, a FAIR TAX.

It's time for Indiana to support the Fair Tax, and it's time to urge our immediate neighbors and our country to support it as well.

We don't need worthless short terms fixes like Mayor Bart Peterson just espoused - a 'fix' that will have us paying more than we bargained for NEXT year, and years after that. We need a real solution and we need to start getting real.

To prove to you that I'm not biased about this, you should just know that if Fair Taxation were adopted in Indiana and the US, I would be out of a job (albeit temporarily) since my work deals with tax credits. And tax credits are great, and can be useful, but the best incentive you can give a company is tax transparency, and a corporate income tax rate of 0%.

In the long-run, a sales tax that replaces other taxes (and yet maintains progressiveness via a rebate) is more efficient, lowers the tax burdens of most all groups of people and corporations, and is transparent and easy to follow.

In the short-run, why not at least offset some of the property tax jump with a small county-run sales tax. Of course, this kind of thing has been talked about before in Marion County - but sloppier minds always prevail sadly.

In the very short-run (this year, ie now) there are no easy answers - but I think at least a pause, a breath, and a proper reassessment are in order.

No wonder China is least-cost producer in so many areas...

...they use cardboard as an input to food....

ingenious....

http://www.cnn.com/2007/WORLD/asiapcf/07/12/cardboard.food.ap/index.html?eref=rss_topstories

UPDATE 07/19/07:
CNN is reporting that this story was a hoax. I guess that's a relief.

Iran's Gasoline Conundrum

Iran is one of the world's largest sources/exporter of oil, and yet, doesn't have the capacity to refine its own oil to make domestic gasoline. That is funny.

Iranians are getting fed up with the domestic policy of gasoline rationing

Sub-Prime Morgages - Becker/Posner

Becker and Posner discuss Sub-Prime housing markets.

...And I try to argue against the Chicago-school-as-usual line of thinking they offer up:

"However, intentional misleading presentations to families who were clearly unqualified to take on home ownership was not the norm but rather were exceptions."

How do we know that? And, what are defining "norm" as? 20% of cases? 50%? A large majority???

The foreclosure rates keep rising and rising - ie - we haven't even seen how extensive this problem is yet. We just know that it is bad now, and getting worse.

Also, you lump 'congress' into one entity that presumably wants to prevent poor people from home ownership. I don't think I've heard that from anyone - all I've heard is talk about putting some restrictions on the blatant smoothtalking and in some cases all out lying that obviously has been happening --- whether they be 'exceptional' or not.

The Indianapolis Star reports on a part of the Indiana Budget recently passed into law that would make motorcyclists pay a $10 fee to go to research to prevent spinal / brain injuries. The part of the bill was buried and not even the Governor was aware of it. He says motorcyclists have a right to be upset. And they are.

But interestingly, commenters are comparing this fee to the tax hike on cigarettes also passed in the previous legislative session. To them there are no differences.

To me there is a big difference:

Cigarette users create a substantial social cost via second-hand smoke related health problems, cigarette promotion of to our youth, the smell of cigarettes in our public areas, etc. The tax acts to account for those social costs - to make the smokers pay for the costs not internalized by themselves or the manufacturers.

However, a fee (tax or whatever) on motorcyclists to promote brain/spinal injury research is completely different. Let's just assume that motorcycling is the highest risk category (on a % of use basis) for brain injuries etc. Presumably, the bikers are already internalizing that risk. Presumably bikers that don't wear helmets are more risk-seeking than those that do. Regardless, head injuries etc are costs that apply mostly directly to the motorcyclists and their families (financial and psychological pain of loved one's death/injury). Externalities are minimal. So really, with a fee on motorcyclists alone, while ignoring all other groups of people where brain/spinal cord injuries might be high (like auto racers), just seems unfair to me.

Incentives for the Poor - for doing their social duty

I ran across an interesting Canadian Press piece (oddly enough) about New York's new incentives for poor people.

From the piece:
"Poor New York City residents will be rewarded for good behaviour - like US$300 for doing well on school tests, $150 for holding a job and $200 for visiting the doctor - under an experimental anti-poverty program city officials detailed Monday. "

So it seems that basically, New York will now give incentives to people for "living" - doing things that people should be doing anyway, as part of being human beings.

Holding a job? You shouldn't have to be paid for trying to do good work at work. You shouldn't be paid for not calling your boss names, etc.

Visiting the doctor? Wait. Let me get this straight. Some bloke doesn't care about his health, so I the tax payer should? Oh wait, that's our existing health care system ;)....

But the kicker is "doing well on a school test." So now we have to pay people to study? You know I'm fine for supporting education financially, in fact, IMOP, it should be the largest outlay the government makes. But giving people money for doing what normal people do on an everyday basis is offensive to me. Not only that, but it should be offensive to poor people, because it implies that the only reason they are poor is because they are trying their best not to live normal lives. It further implies that a little bit of cash could change years of ingrained behavior. I'm not so sure - seems like this kind of spending would be the kind of thing people look for loopholes to get around.

Finally, this kind of incentive focuses on the incentive it provides to the poor, but what about the incentive it provides to the middle class.

Consider: "The World Bank model for cash reward programs in other countries is that the value of the incentive should equal about one-third of a household's income to have any lasting influence on changing behaviour. "

Sign me up! I'll gladly become a part-time worker and do all the other 'hard-work' of being a human being in order to get 1/3 of my earned dollars essentially for free!