Pages I refer to often

  • Income Distribution in the US
    How is our income distributed? Well, it is pretty concentrated. How concentrated? Take a look.
  • Progress and Poverty, by Henry George
    Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
  • Wealth Concentration Tables from 2004 SCF: Bottom 90%, Next 9% and Top 1%
    Aggregated data by net worth quantile, for various kinds of wealth. With calculations you won't find anywhere else!
  • Wealth Concentration Tables from 2004 SCF: 50-40-5-4-1
    These tables show how concentrated the ownership of various kinds of assets are. With calculations you won't find anywhere else! This version is less aggregated: Bottom 50%, Next 40%, Next 5%, Next 4% and Top 1%.

Categories

Books I Value

  • Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy
    This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
  • Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It!
    This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm

Where Else Might You Look?

Sites I enjoy

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« How much is your home worth? | Main | A Few Inconvenient Truths about the Property Tax »

April 19, 2008

Comments

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Robert

There is no indication that consumer spending on goods and services, around $9 trillion annually, is ever likely to do anything other than stay roughly the same or grow year over year (with the exception of occasional recession-induced corrections, which are relatively minor - in fact, historically consumer spending levels swing less than income levels do).

You might argue that if retail prices go up as a result of enacting the FairTax, then people would spend less on luxury items or non-essential goods and services. But that would require (1) dismissing that wage earners would have a heck of a lot more spending power without income tax with-holdings, and (2) ignoring the well-studied concept of embedded taxes, which make up roughly 22% of the cost of all retail items we purchase today. The market equilibrium forces would almost immediately drive all prices downward the moment these embedded tax costs are taken out of the supply chain.

Furthermore, I will never believe that people in America, when freed of income tax burdens, would suddenly be inclined to just sit on their money and not spend it. Where do you get that from?? Do you live in the same consumer culture I live in?

The benefits of replacing our arcane income tax with the FairTax go way beyond what I can type here. If you think continuing with income taxes is the way to go, you should talk to my employer. As I type this they're evaluating which offshore locales to relocate the portion of the business (software) that caters to non-US customers. This is so we can compete on a more even playing field with our competition abroad. In a global marketplace, companies that aren't saddled with the income taxes we endure as US workers have quite an upper hand!

LVTfan

Robert, I suspect you're right that spending will not rise. Which means that producers and distributors (who are actually equally producers [I originally wrote "distributors"], though we seem to look at them differently) will receive less. We will continue to spend $1, but instead of $0.94 going to producers of various kinds -- manufacturers, growers, processors, distributors, retailer and their employees -- $.75 will go to them. That represents a significant reduction in demand.

Luxury goods might be okay. The wealthiest among us will see a HUGE reduction in their taxes, and will have even more to spend than they do now. The market will shift to producing even more goods to satisfy the top 5% of the population. Is this a good thing? Is trickle down excellent? It doesn't sound right to me, but your mileage may vary.

If people below the 95th percentile or so of the income spectrum find themselves with more disposable income -- which strikes me as extremely counterfactual based on the distributional tables I've seen -- what would happen? Their ability to spend more on housing would drive up the price of housing. But what they'd be buying would not be so much houses, granite counters, refrigerators and bathrooms, but locational values -- and while their purchasing power may enrich the sellers, it doesn't create any demand for manufactured goods ... in other words, jobs. Spending more on land is inert, except to the extent that it enriches mortgage lenders and their shareholders, who haven't done diddly to improve the economy. One might as well drop that monthly mortgage check into a hole in the ozone.

I am as opposed to income taxes as you are. But I don't see any gain for you or for me or for the vast majority of the American people in a tax on consumption.

And if we went the direction I'm recommending, American landlords would be courting your employer with lovely office spaces in which to house their business, and you with appealing places to live in, close to your work. And we all might become reasonably indifferent to whether we owned or rented, because we'd be close to our work and getting what we paid for, with options galore. Seems worthwhile to me, particularly when I factor in the benefits to future generations ... our children and grandchildren -- all of them!

Robert

Glad to hear you're opposed to income taxes as well, but I have to respectfully disagree with your point about Americans, under the FairTax, continuing to spend $1 and leaving $0.75 for the producers rather than $0.94. With income taxes removed, middle class Americans would have ~30% more to spend. So while you could argue that producers would get $0.75 under a FairTax, wage earners would have 30% more in their bank accounts to give them - making it pretty close to a wash to producers.

I've never heard anyone suggest that removing income taxes would cause more businesses to cater disproportionately to the uber wealthy. For one, this special class of people already has plenty of money regardless of our tax policies, what's stopping this "catering to the wealthy" bonanza from happening right now? Furthermore this tiny fraction of society doesn't offer much in the way of economies of scale to the entities selling them expensive widgets. The sweet spot for profitability is in selling high volume at reasonable prices. Selling goods that can command an incredibly high margin are the rare exception - market forces always draw other businesses in to compete when products are selling at an unreasonable premium.

You have quite a focus on property and real estate for deriving revenue. But there's a whole other spectrum of goods and services out there that are vying for consumers' wallets (and thereby providing an opportunity for deriving tax revenues). I also don't buy into the idea that such a significant segment of the population would immediately go looking to buy bigger homes (thereby substantially driving up prices) when they find themselves suddenly getting 30% more take home pay. But most of all, I can't think of any way you could possibly start taxing property owners at the federal level without triggering some kind of nationwide revolt, even after accounting for the removal of income taxes.

Small point here, but as to the environmental angle, wouldn't the FairTax have a provision for that as well? Since only NEW goods are taxed, it would naturally encourage reuse of end-use items for which taxes have already been paid.

That's not to mention the added benefit of deriving tax revenue from tourists and illegal aliens. To me, the true beauty of the FairTax is that it represents such an enormous expansion to the size of the tax base. I don't think anyone could possibly dream up a way to make it any larger. I'd be curious to know what the size of the tax base would be if the revenues were derived entirely from US real estate/property owners, and what the impact would be to the average home owner. It would take a lot of study (similar to the scope of study that has been put into the FairTax).

Sorry for my disorganized rant. Posting this was just a brief escape from a crushing workload tonight.

Robert

One more point I forgot to mention - the FairTax would not be a replacement for property taxes. It would only be targeting income taxes. Property taxes (or land value taxes or whatever you want to call them) will always be with us.

Also, please address the "prebate" provision of the FairTax, as I feel that provides a brilliant protection to poorer people from shouldering an unfair tax burden. It pretty much counters the anti-FairTax assertion that a consumption tax is simply a mechanism to "shift the burden of taxes off our most prosperous society members and onto to those who already struggle." I wholeheartedly disagree with that.

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