The Big Econ Debate of the Weekend

Over the weekend, the analysis arm of the American Economic Liberty Alliance tossed a topic around Twitter, asking which form of taxation is the least evil.  I guess you can check the various timelines of me (@AustrianAnarchy) and them (@TheAELAOfficial) to get the whole picture if you really want to.

The basics were a slightly open-ended question between a low national income tax or a high sales tax. Now, this Austrian Econ lover prefers a single amount on every person in the country, but that was not a choice.  So, my answer was a sales tax.

Apparently that did not fit the script, since they were talking about the fair tax supported by @FBNStossel and @GovGaryJohnson which proposes a 23% consumption tax. Why those two are proposing an unconscionable rate of 23%, which is unconscionable for any tax, is unknown to me.  My position is 3% of GDP and start with a 3% sales tax on all goods/services, then adjust. Also, not said on twitter, the tax needs to be obvious on the receipt/invoice of everything the tax is collected from.  Additionally, I am an advocate for taxes being collected at one point, and only one point, in the transaction chain.

Well, this opened a different redistributionist/progressive can of worms from AELA:

@austriananarchy A sales tax forces tax inequality by taxing different people at different proportions.
— TheAELA (@TheAELAOfficial) April 6, 2013

For one thing, they state this as if it is inherently bad.  And no, it does not in the slightest tax different people in different proportions. It only taxes on what one consumes and nothing else. Sure, if someone is spending all of his income on food/shelter, then all of his income is taxed too.  So it really makes no difference if he was taxed 3% on income or 3% on goods, the tax man got 3% of his wages anyway.  If he is a bit more self-sufficient, he is rewarded by retaining income that the tax man would otherwise have stolen.  Stated otherwise, when he gets to a point where his income exceeds his purchases, he stops getting taxed. Sounds like an incentive rather than a punishment to me.

If we are working with a flat sales tax, then all products are taxed equally and market distortions are minimized.

The notion that a flat sales tax (gasoline, cigarettes, and food all taxed at the same rate) "unfairly taxes" comes from the utility theories of Keynesians.  Someone with little or no disposable income is taxed unfairly if all of his income is spent to survive, but the person with oodles of disposable income is getting away with something if he spends on frivolity, or just saves without his "extra" money getting taxed.

Their redistribution colors were shown with this tweet:

@austriananarchy If you had a low flat income tax a % could go back to the states. No need for a sales tax.
— TheAELA (@TheAELAOfficial) April 6, 2013

Sure, it could "go back" to the States, and I replied that it sounds just like right now. Unstated then, it turns the whole country into a giant federal only tax district, where the feds are the ones who spread the collected money around. Why something like letting the feds have their one tax and "letting" the States create their own, never occurred to them (or was dismissed) is a bit odd too.

They later posted something about it (Taxation. Which method is the least evil?), sticking with the argument that a low income tax is the only argument against a 23% sales tax, even though I (and presumably others) pointed out quite plainly that 23% is ridiculous and 3% should be just fine, like it was in the 19th century.

Ⓐ Steve Ⓐ