Taxation logic is hard to quantify at times -- Adilbrand Noblesword's Hall of Warriors

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Date Posted: 09:55:12 03/29/04 Mon
Author: Adilbrand
Subject: Taxation logic is hard to quantify at times
In reply to: mt. healthy mountaineer 's message, "Re: ???" on 23:40:58 03/28/04 Sun

I think he has failed, in his arguments, to apply the same logic to taxes and conclude the if the government is sopping up personal income it hurts the economy as well. Freeing up personal income (lowering taxes) should increase consumer spending and boost the economy.

Right, it does. Of course, the poor really don't get taxed all that much, as you pointed out, anyway. But raising/lowering the tax rate can be used to combat inflation to a degree (although it is not the best method).

The sad thing about taxes today is that in 1929, State and Local plus Federal income taxes as a percentage of GDP equalled 11%. In 2000, they accounted for 30.6%.

Still, the government is expected to provide for public goods and services, the redistribution of income, and stabilization of the economy and economic regulation. Few public goods would be provided by private enterprise because of the free-rider theory. The government also functions as a type of Robin Hood, taking money from the wealthy and giving it to the poor, often in the form of subsidies for farmers and shipbuilders and public aid.

The most important functions of taxation, of course, is stability and economic regulation. The economy needs stable prices and low unemployment. Raising taxes fights inflation. During inflation (and I am NOT arguing we are in this situation), taxes need to be raised. During recessions, tax cuts are needed.

It is also true that tax cuts increase disposable income, one of the components of demand. Decrease taxes, and demand shifts to the right. Increase taxes and demand shifts to the left. Decrease taxes too much, and we will have inflation. That is my concern when the politicians start promising tax cuts - are they cutting so much that inflation will offset the gain?

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Hey! I agree with you down here, too, Adilbrand. (NT) -- Mt. Healthy Mountaineer, 18:32:18 03/29/04 Mon