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What is an Appropriate Tax Rate? (and Other Questions)

November 18th, 2008

A reader asks several questions in response to my 11/5 post, How Do Taxes Destroy Productivity? I would like to take a few minutes to respond to his (her?) inquiries.

Is your argument about the NJ “vig” that NJ’s economy suffered as a result of this tax? That NJ experienced negative economic growth, or increased unemployment as a result of this policy? Also, since the boat industry lost 7,600 employees nationwide in a year, does your argument extend to the claim that a tax change in NJ caused job losses in other states?

I don’t know whether NJ’s economy suffered. I try not to deal in abstractions like “national economies” or “state economies.” The only thing that matters are personal economies, and I can tell you with absolute certainty, that at least 7,600 people were directly made worse off by the imposition of that luxury tax on yachts. Moreover, since the luxury tax failed to generate the expected revenue (because shortsighted politicians assumed perfect price inelasticity of demand for luxury yachts), the rest of the constituents who arguably depended on the goods and services to be thereby provided, also suffered.

Are you aware that most jobs in the U.S. are created in states with relatively high tax rates? Or that the major new growth industries here (i.e. computers, media, biotech, finance) are all based in the highest tax states of CA, MA, NY, and NJ? Discuss.

I’d be glad to discuss, if you could frame it a little more clearly. When you mention “relatively high tax rates,” are you talking about sales tax? New York has a relatively low sales tax (4%), and although NJ and CA have high sales tax rates, so do Tennessee, Mississippi, and Nevada.

Are you talking about income tax? Although California is high on the list of income tax rates, there are a number of states with higher income taxes than NY (6.85% and MA (5.3%) including such dynamos of productivity as Maine (8.5%), Vermont (9.5%), Arkansas (7.0%) and Idaho (7.8%)

In terms of corporate tax rates, by State, the highest are found in IN, PA, DC, MA, AL, RI, and LA. California is #9 on the list, New Jersey comes in at #20, and New York is a paltry #22.

Moreover, there are a number of reasons that some of these states (CA and NY, in particular) might be chosen despite their onerous sales and/or income taxes: If you’ve never been, California is a fucking beautiful state. New York is the financial hub of the world. Both locations offer prestige, and convenience for international trade routes, etc.

In any event, I don’t think the relationship between tax rates and job growth is nearly as strong as you suggest.

Out of curiosity, what would you consider to be an appropriate tax rate?

I will agree for the sake of argument that such a thing as “an appropriate tax rate” exists. Of course, implementing additional taxes on an arbitrary and ad hoc basis would seem to violate any notion of equity or appropriateness. Setting aside the obvious issues I have with taxation as a general principle, let’s remember that in the context of this discussion, I was writing about a specific instance of an arbitrarily imposed “luxury tax”, and the devastation it caused to the shipbuilding industry.

Again, I would like to remind you that in this particular case, the revenue was never realized to provide whatever services would have arguably “justified” the higher taxes.

Do you believe there is a connection between taxes and any services provided by the government? Another way, do our taxes get us anything, or are they solely a redistribution of wealth? Should we take the vig to 0% and have our military earn its money by operating businesses (as in Pakistan)?

Maybe, if we took the vig to 0%, our “leaders” could stop throwing rocks at hornets’ nests in foreign lands? The United States is surrounded by relatively neutral neighbors, and 3,000+ miles of ocean. A state-sponsored, military assault that would require a 1MM man defensive army is inconceivable.

There’s a connection between the taxes you paid and the detainees who were raped and sodomized and urinated on at Abu Ghraib. There’s a connection between the taxes you pay and the bombs dropped indiscriminately on brown people that speak funny languages and wear scarves on their heads. There’s a connection between the taxes you pay, and the systematic exploitation of poor foreigners. There’s a connection between the taxes you pay, and any person who’s ever been imprisoned for smoking a joint.

Of course there is a connection between taxes and services that the government pays for, but by the real question is, “Why does the government get the sole privilege of providing these things?” and furthermore, “Why am I obligated by force of law, to consume these things?” or rather “Why will someone shoot me if I don’t want to buy them?”

There is a gun in the room… Most people are comfortable pointing it at someone else. I’d prefer not to have it in the room, at all.

no third solution

Blogging about liberty, anarchy, economics and politics