Saturday, January 21, 2006

Pyrrhic choice

In the past I've endorsed consumption taxes as a less execrable method of government revenue-generation than property and income taxes. Much of my disdain for the latter forms of taxation is ethical — property taxes are equivalent to paying rent on one's property to the government and suggest that one does not really own that property, while income taxes are simply an arbitrary but legally enforced expropriation of one's efforts. Consumption taxes at least allow one the choice to delay the reckoning and induce savings or investments in production. And, at a local level at least, the mobility of spending on goods and services would mean that a dependence on consumption taxes would promote fiscal discipline by governments proximate to other governments. At the federal level, however, there would not be the comparative advantages for financial efficiency.

Colby Cosh forwards an Austrian School argument articulated by Murray Rothbard that has me rethinking my predisposition to consumption taxes, at least as a pragmatic policy at at the federal level:

It is true that savings leads to a greater supply of consumer goods in the future. But this fact is known to all persons; that is precisely why people save. The market, in short, knows all about the productive power of savings for the future, and allocates its expenditures accordingly. Yet even though people know that savings will yield them more future consumption, why don't they save all their current income? Clearly, because of their time preferences for present as against future consumption. These time preferences govern people's allocation between present and future. Every individual, given his money "income" — defined in conventional terms — and his value scales, will allocate that income in the most desired proportion between consumption and investment. Any other allocation of such income, any different proportions, would therefore satisfy his wants and desires to a lesser extent and lower his position on his value scale. It is therefore incorrect to say that an income tax levies an extra burden on savings and investment; it penalizes an individual's entire standard of living, present and future. An income tax does not penalize saving per se any more than it penalizes consumption.
A reduction in the GST, as much as a reduction in federal income tax, has an compelling advantage that overrides any argument over the relative merits of either tax — that it constrains the federal government's ability to spend without incurring a deficit, as long as it is unaccompanied by increases in other taxes. But the last word goes to Cosh:
The message is that taxes — all of them — stink like microwaved diaper.
HT: Canadian Taxpayers Federation Blog.


Daniel said...

That's definitely an interesting view. I too agreed with your initial view, but the other case is compelling. At any rate, as you say, cutting the GST is at least a good thing.

Robert McClelland said...

property taxes are equivalent to paying rent on one's property to the government

No, it's the equivalent of paying for a service. My gawd, you clownservatives would regress us back to the era where we emptied our full chamber pots into the streets.

MapMaster said...

No, it's the equivalent of paying for a service.

That would be true, of course, if there was any sort of connection between the payment and the service provided, as there is when you pay for a service in the private sector. As it is, what do you get when you pay your property taxes? I guess you could answer "the whole shebang" of services that the city provides (most of which, or argably all of which, could be provided by private interests — I think most of us would willingly pay for indoor plumbing and sewers). As an added bonus, you get to pay a whole lot of politicians and bureucrats to do things that very many or most people would not willingly pay for. Hence, that's why government gets to use the leverage of legal force to get us to pay for them.

But assuming that the city was not unnecessarily wasteful, and that the services it provided were universally desired and useful, property taxes mean that only property owners pay for them. Why should not the city provide only services that benefit only property owners in this case? Heck, they're the ones paying for them.

MapMaster said...

PS. Daniel, where's that email? ;-)

Daniel said...

It's coming, it's coming :)

(and it will include at least one pleasant surprise)