May 4, 2013

Fair or Foul Tax System

Earlier this year in the Washington Post it was reported that Republican governors were moving aggressively “to cut personal and corporate income taxes, including proposals that would increase reliance on state sales taxes, setting up ambitious experiments in tax reform that could shape what is possible on a national level.”  I think this could make the federal tax system more simple and efficient.  I can see the incentives for the governors to explore this avenue because it would be easier to take advantage of the improving economy and the gradual rebound in revenues.  “In Louisiana, Gov. Bobby Jindal is pushing to repeal the state’s personal and corporate income taxes and make up the lost revenue through higher sales taxes. Gov. Dave Heineman of Nebraska is calling for much the same thing in his state. Gov. Sam Brownback of Kansas wants to keep in place what was supposed to be a temporary increase in the state sales tax to help pay for his plan to lower and eventually end his state’s income tax.”  It seems to me as if all of  these governors don’t really know what type of tax system they want or that will really help the economy grow and prosper; but a few do seem to understand and are advocating that the economy would be better off by focusing taxation on consumption rather than on income.  Taxing consumption would incentivize economic growth because it would encourage more savings and investment.  On the other hand, taxing consumption could increase inequality because it would reduce taxes for the wealthy who which spend far less of their income compared to the lower and middle class.  “The question of whether we should tax income or whether we should tax spending is really a proxy for a different debate,” said Joseph Henchman, vice president for state projects at the Tax Foundation, a conservative-leaning research organization. “Everyone agrees we’ll get more growth with consumption taxes. It’s just that some people prioritize fairness.”  After taking your classes (Power and Prosperity, Urban, Austrian and Finance) I really question the idea of fairness.  If we aren’t breaking a rule or stepping outside of regulations then I don’t think it should be a question of fairness; Fairness has the potential to be way too normative.  As we have acknowledged before, competition is a good thing and I believe taxing consumption would make the state more competitive in finding employers and high-skilled workers; furthermore taxing consumption could simplify our tax system and relieve some pressure for government spending.  Both parties have varied views on this tax system but it seems as if Republicans are pro consumption tax because they believe it is more robust thus helping them get more conservative voters; and Democrats are against it because they think it would harm education, health care and welfare programs because they think the tax system would shift the burden to the lower and middle classes.  I think taxing consumption would be a good thing for the economy, but I don’t know if we will ever be able to enact such a system because as in most cases it will create winners and losers.  It’s a matter of will more winners vote or more losers vote, who knows, the future is unknown and life if dynamic so only time will tell.

No comments: