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Friday, April 22, 2011

See, Here Is What You Can't Do...

Veronique de Rugy claims that "The wealthy disproportionately fund the United States federal government." But she is just analyzing the legal incidence of these taxes. What is foul play is for free-marketers to sometimes use the legal incidence of a tax when that comes out to their advantage, and other times make the point that the legal incidence is economically unimportant.

11 comments:

  1. Sorry, Mr. Callahan. There is no such thing as a free market blob monster, where one head is of Steve Landsburg, one head is of Veronique de Ruqy, one head is of Milton Friedman, one head is of Arthur Laffer, one head is of Alfred Marshall, and so on. They all move as one and speak as one, supposedly. Because obviously, differences between them outnumber similarities.

    I don't understand this idea of a free market blob monster that is thrown around so often. Apparently, this blob monster contradicts itself, because one free marketer said one thing and another free marketer said another thing that implicity disagrees with the first free marketer.

    Veronique and Steve are both heads on the same blob monster, so both of them are contradicting themselves, even though not one of them made both the points.

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  2. Very funny, Prateek. Except that Landsburg tries to make both contentions right in one comment on my blog! (See my original post on this.) So we don't need to posit this blob monster at all.

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  3. When people say that the rich aren't paying enough in taxes, this assumes both that the legal incidence of taxation on the rich is not already high and that the economic incidence of the taxes is the same as the legal incidence. So I don't see a problem with pointing out the flaws in both of these assumptions.

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  4. Edward, but the arguments cut two different ways. If the legal incidence is high but the economic incidence low, then why not raise the legal incidence even higher?

    One argument says, "The rich are already taxed too much!"

    The other says, "Ha! You think that tax will affect the rich? It won't affect them at all!"

    They obviously contradict each other.

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  5. Gene – in the case of discouraging productivity, the legal incidence is more important. People are working for income.

    But taxing their income isn't the same as changing their consumption. Yes, they're usually (tightly) correlated, but the 'rich' generally consume significantly less of their income than the 'poor(er)'.

    The higher the tax, the less (income-generating) work the rich will perform. But they'll still be rich. But with more time, and less for anyone else to do.

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  6. K, sorry, I think this is very clearly wrong -- after all, if I was if one was working for income, a higher tax rate would have NO effect, since one's income is the exact same! No, we very clearly work for the BENEFITS that our income might bring. And if I can gain the exact same benefits from an income after a tax increase because I can pass all of the tax on to others, then my productive activities would not change at all. Indeed, this is precisely what it means for something to be the economic incidence of a tax rather than the legal incidence.

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  7. Basically, doesn't this boil down to who has pricing power? I think that is what you are saying.

    So that, if it could be shown that almost all 'large income generators' had pricing power, i.e. were cartelized, etc., that the incidence of taxation would just show up as lower and lower purchasing power for 'low income generators'?

    I'm sorry, I've been reading a lot of Thorstein Veblen, and your assertion is just too spooky...

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  8. Yes, Scott, or price elasticities, depending on how you want to look at it.

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  9. Edward is right. If the point is to criticise someone else's argument, then it is irrelevant to point out that the responses don't fit together into a coherent whole. All that proves is that the original comment is wrong on multiple levels. In this case, lefty types tend to assume that the practical incidence of the tax is the same as the legal incidence, so it's fair to point out that if that assumption is true, well, rich people are already taxed heavily.

    I don't know how clearly the commenter in question was thinking about this at the time she was speaking, though.

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  10. "Edward is right. If the point is to criticise someone else's argument, then it is irrelevant to point out that the responses don't fit together into a coherent whole."

    So one's criticisms don't have to be coherent?

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  11. That's right, they don't have to be coherent together, because a valid argument against something might be in the form, "And, for sake of argument, even if that were true, what about this?" (which of course doesn't work at all when one is advancing one's own argument.

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