The market decides upon whom a tax falls
Mises made this point long ago, and Stephen Gordon backs it up.
The government can only decide from whom a tax is collected: it has no power to decide upon whom the actual burden of the tax falls.
That is why (given we are going to have taxation at all -- I know you anarchists object!) it is best to have one simple, easily assessed, tax. I recommend taxing land: you can hide your income or fudge your expenses, you can't hide or fudge your land, so the IRS won't need a large enforcement apparatus, and people can stop trying to game the tax system. And everyone relies on land whether or not they own any, so the incidence of the tax won't fall only on landowners.
The broken nature of our political system is illustrated by how little chance any such reform has of passing: such a reform would benefit pretty much everyone except tax attorneys and tax accountants, and yet they would still be able to block its passage.
The government can only decide from whom a tax is collected: it has no power to decide upon whom the actual burden of the tax falls.
That is why (given we are going to have taxation at all -- I know you anarchists object!) it is best to have one simple, easily assessed, tax. I recommend taxing land: you can hide your income or fudge your expenses, you can't hide or fudge your land, so the IRS won't need a large enforcement apparatus, and people can stop trying to game the tax system. And everyone relies on land whether or not they own any, so the incidence of the tax won't fall only on landowners.
The broken nature of our political system is illustrated by how little chance any such reform has of passing: such a reform would benefit pretty much everyone except tax attorneys and tax accountants, and yet they would still be able to block its passage.
Why does the fact that the government has no power to decide upon whom the actual burden of a tax fall mean that they should therefore have one simple, easily assessed, tax ?
ReplyDeleteCouldn't a tax be really simple to collect but still fall disproportionately on one section of the community - just not necessarily the ones who actually pay the tax ?
"Why does the fact that the government has no power to decide upon whom the actual burden of a tax fall mean that they should therefore have one simple, easily assessed, tax ?"
DeleteBecause the whole point of our current tax complexity is to target certain demographics (e.g., 'the rich') and make them pay more.
"Couldn't a tax be really simple to collect but still fall disproportionately on one section of the community - just not necessarily the ones who actually pay the tax ?"
Yes. And since the government / law-makers can't control that, why worry about it?!
My point is that the optimal tax should not only be simple but presumably also be fair, and the fact that the government has no power to decide upon whom the actual burden of a tax fall doesn't mean they can't take its fairness into account.
DeleteFor example: Suppose 95% of land was rented out to subsistence farmer who make up 5% of the population, and 5% to rich city dwellers who make up 95% of the population. If an acreage tax was imposed on landowners it would probably end up being a tax whose burden would disproportionately fall on landless subsistence farmers.
So even though the government has no power to decide upon whom the actual burden of the tax would fall as this would be decided by market forces, just as you say - I do not see why they should not take into account upon whom the actual burden does fall, and not just the simplicity, when deciding on what form of taxation to use.
I agree on both points, but not your attempt to connect the two. The complexity of economic incidence *means* that a land tax (like other kinds) can't make the incidence obvious. You don't know whether landowners got to pay less for their land because of the tax, or whether they could pass it on to labor.
ReplyDeleteIf we distinguish economic incidence from "accounting incidence" (don't know if there's a standard term), then a land-only tax would simplify the latter, not the former. Also:
>The broken nature of our political system is illustrated by how little chance any such reform has of passing: such a reform would benefit pretty much everyone except tax attorneys and tax accountants, and yet they would still be able to block its passage.
I disagree that this can be pinned on the brokenness of the political system -- the average homeowner would (irrationally IMHO) freak out at such a tax and oppose it. It's not like there's a big contingent of people wanting such a tax shift that are continually frustrated by lobbyists that keep killing reasonable bills.
"If we distinguish economic incidence from "accounting incidence" (don't know if there's a standard term), then a land-only tax would simplify the latter, not the former."
DeleteYes. And all I am aiming to do is simplify the former! Why would you think otherwise?!
Because your citation of Mises (and that entire discussion on it) refers to economic incidence, not "accounting incidence"?
DeleteYes. It refers to the economic incidence of a tax... to note that POLICY CAN"T DETERMINE WHERE IT FALLS. And you comment that my proposal... CAN'T DETERMINE WHERE THE ECONOMIC INCIDENCE OF A TAX FALLS.
DeleteThanks so much for your help, Silas!
Are you sure you didn't edit it? I was replying to some part of the original that was suggesting it would make "your tax" somehow clearer, by noting that it only makes the accounting incidence clearer, not the economic.
DeleteIt wouldn't affect the rest of my comment, in any case.
Also, at a high enough tax rate, people can employ increasingly convoluted plans to frustrate attempts at correct assessment.
Doesn't the logic of "The government can only decide from whom a tax is collected: it has no power to decide upon whom the actual burden of the tax falls." depend on liquidity of the assets taxed, as well as various income or price elasticities of the agents taxed?
ReplyDeleteConsider that the value of the land tax is 100%. Surely those who were taxed are somehow disproportionally affected by this "accounting incidence"?
If so, government can use the knowledge of these elasticities and illiquidities to tax the people it wants to tax, with varying collateral damage.