tax models

Francois-Rene Rideau
Mon, 29 May 2000 00:39:43 +0200

Dear armchair economists,
   I'm cross-posting to, so that messages be archived.

Are messages archived? They should.
If you want, I can setup such an archive on ...

Mikko Ellilä <> wrote on the list:
> I´ve lately been thinking about the possibility of abolishing all taxes on
> capital while leaving all taxes on labour unchanged.

I hope you still tax profits (that are the labour of capital)
in the same way as human labour, least you commit a real injustice,
and I will side with workers against such capitalist abuse.
[Remember: under the word "capitalism", actually two opposite doctrines live,
(classical) liberalism, the doctrine of freedom, and
mercantilism, the protectionist doctrine of some merchants' interests].

As far as taxation ideas go, I recently had silly notion that you could
perhaps tax consumption more than investment, so as to encourage the
accumulation of capital. But I realized that no one has the authority
to make the difference between real investment and real consumption.
When someone "invests" money in business banquets, it's really consumption.
When someone "consumes" money in a car that allows him to be less stressed
when he commutes between home and work, it's really investment.
As always, the CRUCIAL problem is that of authority.
Who has the authority to decide for others? [See under .sig for a quote]

As far as I'm concerned, I think we can ultimately categorize taxes
according to two main principles (independently from pro|regressiveness):
taxes on riches, and taxes on transactions.
What can morally justify them, and what are the economic effects?
(which questions, if Nature is consistent, must lead to the same
conclusion, from two different points of view -- which is our checksum).
Taxes on riches punish people for what they ARE;
Taxes on transactions punish people for what they DO.

The former must be strictly limited as mostly unjust to me,
because (1) no one chooses what one is, and thus such taxing goes
against the principles of freedom and responsibility;
(2) whereas the riches of some people are internal, it would be unjust
to comparatively tax more people who have less such riches,
and criminal to tax more people who have more of them;
(3) State doesn't DO anything about what we ARE, so isn't entitled
to levy a tax on it.
(4) So as to be just among citizens, the tax on BEING should thus not depend
on riches at all, and be uniform among everyone (per capita);
a positive one would be citizens paying for the State helping
their personal preservation, while a negative one would be the State
providing some unconditional minimal income to create the conditions of
order. (5) However, it seems to me that, if we are to also consider justice
with respect to non-citizens, as well as the trouble relative to giving
the State power of such redistribution of wealth, the only safe value for
such a uniform tax is zero.

Now for the second type of taxation, taxation on transactions,
seems fair to me. (1) one is taxed for things that one do
and is thus responsible for; (2) it is just that tax be proportional
to the activity (not progressive, not regressive), whatever this
activity maybe (any kind of work, labour, profit, inheritance, etc);
(3) State DOES provide some warranty against fraud, theft, etc,
and is thus entitled a just compensation for this warranty
(nothing less, nothing more).
(4) such tax is just among citizens, and between citizens and foreigners
(although in this case, each state is entitled a part of the tax proportional
to its involvement in legally warrantying the transaction).
(5) in as much as some transactions involve more work or risk
from governmental force, it could be envisioned that they would be taxed
unequally; however, this would bring back the problem of the authority
in regulating taxes, which we are trying to avoid.
(6) Hence, the good classical liberal idea would be to enforce a flat rate,
and limit the legal warranty granted by government accordingly, inciting
people to seek economic warranty in insurance services, that will be taxed
by their respective states.
(7) another advantage of a flat uniform taxation rate is to give a direct
and objective measurement by citizens of the cost of their government,
so that they can more accurately judge the politicians they vote for.
Of course, citizens still have to do the benefits part of the analysis,
now, politicians are more prone to cheat on costs than on benefits,
so that this setting seems pretty efficient to me.

Is my latter analysis as silly as my former idea? What do you think?

Yours freely,

[ François-René ÐVB Rideau | Reflection&Cybernethics | ]
[  TUNES project for a Free Reflective Computing System  |  ]
The [classical] liberal, of course, does not deny that there are
some superior people - he is not an egalitarian - but he denies
that anyone has authority to decide who these superior people are.
	-- F. A. Hayek, "Why I Am Not a Conservative"