patrick.net

As products move up the value chain they are not taxed. Businesses actually sperate out their sales for resale, and end user retail and track it the state issues resale certificates which basically exempt you from being charged tax because you are adding value or retailing it to the end user. My understanding of VAT (lived in England for a year) and it is discussed in schools here is that tax is charged on each step except for the very last one, the end user.

GST is goods *and services* tax -- the sting is in taxing intangible services, an increasingly large slice of the expenditure pie... e.g. borrowing a DVD from Blockbuster, seeing the doctor, paying the mobile phone bill, etc...

Actually DS, I'll get flack for saying this I always do among my friends, but it is government that is necessary for the society to get going. Without collective expenditures on infrastructure, and things like sanitation, and defense you can't establish commerce.

I like to use a coral reef as a visual. You need a solid infrastructure, then the free market grows all over it.

California has gotten more creative as well. Renting a car is seen as taxable because you are using up part of the value. Basically depreciating it by renting it. I also believe video rentals are taxed, probably the same reasoning, but we don't pay tax here for a plumber's labor. Some states just charge it on everything. Here in California you don't pay sales tax on groceries.

My interpretation of the 'provide for the general welfare' clause of the Constitution is basically the duty of government to build public works projects.

I wish everyone a good night.

While our present society produces sufficient food to easily feed everyone on the planet, there remain distribution issues. With a hunter-gatherer society, abundance may be less, but availability is greater. Ah, here it is: from Wikipedia, a paper by a Marshall Sahlins, suggesting "data indicated that hunter-gatherers worked far fewer hours and enjoyed more leisure than typical members of industrial society, and they still ate well. Their "affluence" came from the idea that they are satisfied with very little in the material sense. This, he said, constituted a Zen economy."

My thinking is that mobility (as is often the case with such societies) also prevents the accumulation of wealth; when I have been on backpacking trips, the tools and supplies are similarly shared out and there is a severe disincentive to carrying along bricks of gold. I suspect that when saddled with the trappings and requirements of agrarian life, such societies would lose that "Zen economy" over time, especially as they grew.

yeah, VAT progressively adds tax as value is added, and has different input and output taxes, or something... the GST here is slightly different, in that the tax is paid entirely by the end consumer, and there is only ever 1 tax rate to worry about. Not meaning to brag, but the Oz system seems to be simplest to administer for these reasons.

All income tax and GST is collected by the Federal govt, and the promise was that the GST is simply given in its entirety to the states by the Feds. Apparently the govt is 'awash with GST money', although the roads and rail are still falling apart. There are still state excises on fuel and the sin taxes as well. Somehow the Federal govt went from an $8bn deficit to a $10 bn surplus in 12 years too...

The definition of 'welfare' is to 'fare well' -- the 'general welfare' to my mind is expenditure on health, education and other transfers such as family payments, unemployment benefits, and so on. There are plenty of public works here -- new schools with too few teachers, shiny new hospitals with too few staff -- where the govt provides one-off funding for construction but does not allocate recurrent funding for adequate staff levels to provide the service that was intended...

My theory is everyone hates capitalism and free markets except when they are winning.

I exclude myself from that definition. But people who've achieved their own wealth are the exception to the rule.

Note, I don't even define "wealth" as money or material wealth. Someone who's built their own empire of anything of value to them, regardless of what form, will have a fundamentally different view on that being redistributed away from them. I'd imagine an isolated monk or a rural bio dynamic self sustainable simply living hippie are similarly offended when someone attempts to redistribute their spiritual or self esteem value away from them by granting to others who did not make the same sacrifices in life to achieve it in the first place. This doesn't indicate these people are mean, foul or amoral. It simply means they are human and wish to see their sacrifices rewarded accordingly.

After all, isn't that why so many renters on this board are so enraged by boomers and FBs? As a renter who could've and would've bought, but didn't because she sacrificed in order to save for tomorrow, isn't she right to get pissed off when the government wants to use her sacrifice to ease the suffering of those who didn't?

It's no different with taxes.

the rot set in with horticultural and agricultural societies -- theft suddenly became prominent, as it is easier to steal something than work for it yourself -- and larger and larger surpluses in increasingly intangible or proxy commodities can be accumulated. And the nomadic life meant you travelled light and often, in a subsistence lifestyle tied to the exigencies of the local environment... Sahlins is best known for his revision of the notion of plenty, which means that these societies had downgraded needs and wants compared to ours, and therefore the notion of economic 'scarcity' meant little (and seems particularly hypocritical in any advanced society to boot, and is one of the absurdities of classical economic theory). However, surplus and a fixed habitat also breeds culture, creativity and the space for invention...

DS

I'm off to bed, but let's hook up in email to discuss your friend re: our Carbon venture. Our Australian folks would like to talk to you too :)

night

sawasdee krup:

gonna ride my motorbike to the badminton courts this afternoon, then over to some friends house for a going away party... Total price: maybe 200 baht... amount of fun... priceless...

Just leave me depreciation on my rental properties in phoenix as you re-write the tax code...

Prices are dropping in phx, and the pending sales number is the smallest i have ever noticed since i started watching, less then 5500; Meanwhile, inventory just keeps climbing, past 55K now... How the F do the experts keep calling a bottom in the near future when every number that influences sales price continues to get worse? For me, the bright side is that rental prices in close are rising... I think thanks to gas prices more than anything... When rental income on a purchase passes 9% I will buy more, but that is still a long ways away right now...;

Peace all, Oh yeah, lets get a stronger dollar so i can have even more fun here in thailand.

Rob

how do you steal the mellow of a hippy? or the zen of the buddhist? do i see a flagging analogy put forth as an argument of convenience?

OK randy, sounds good... by a strange coincidence, I also ran into a lawyer who did ecology in his first degree who is a local expert in carbon trading law, but he's off to spend a year in Norway and the wilds of Africa, unfortunately...

Looks to me like the ideas here fall loosely into two categories, what might be called a virtuous or an egalitarian approach. By that I mean either a system which rewards some behaviors (or circumstances) while discouraging others, or alternatively one which treats all equally, regardless of behaviors and circumstances.

Unfortunately, I can't feel entirely at home in either one. I don't think I could have committed to work in the performing arts as readily as I did had both my Grandfathers not been reasonably well off so that I had some supplemental support when starting out. Rather than a starving artist, I was a notably slim artist.

I guess what I'm saying is that it hasn't been an easy life, but having some wealth in the family - and a family interested in making it possible to do the work I love - made it a possible life. So in self-interest, I suppose, I'm not really supportive of confiscatory estate taxes or death duties.

Not everyone ends up as Paris Hilton.

I don't hate "capitalism" or "soc1alism," except when it reaches malfunctioning results. I don't like it even when the bad outcome benefits me, though I would obviously try to take advantage of the situation.

Income Tax is only the tip of the iceberg. It's the combination of all of the other taxes that we all pay, be it directly (i.e. Sales Tax) or indirectly (i.e. unemployment insurance). That's not even to mention the mandatory fees collected from my phone company, cable company, etc.

I don’t have any quick answers on what the best fix is. If there were a nice simple solution, someone would have thought of it long ago. Weather your for capitalism or communism, the bottom line is how do you prevent those in power from abusing said power to their own benefit?

If you think Socialism/Communism is the way to go, you should have visited one of those countries. These systems essentially destroyed the human spirit in these people and will take at least a generation to recover. Comparing the US to virtually any country in europe, especially Germany/Switz/Norway is preposterous. You have very homogenous populations with the most talented people in the world. Comparatively, our fellow Americans on the street are culturally, mentally , and even physically challenged. we have been able to make strides in the US solely based on the free market/capitalist system which has been massively debased over the last several decades which has compromised our living standards. The US critically depends on the top 1-5% to make it work. contrary to Hollywood and our politicians, it is NOT the great middle class that made the US- far from it. Allowing the most talented to reach their full potential is the only way our country can be saved. and by the looks of it, it wont. There is very little motivation for an extremely motivated, talented person to leave Europe for the US at this point. The previous brain drain that we so needed is gone. Socialized medicine? Look around you 40% of Americans are obese already. Giving them free healthcare will compound the ever growing problem. We need very strict nearly fascist guidelines for the mid-low class in the US with very open liberal business rules for the top 1%. Without it, our mid class will getter fatter/unhealthier, skip school/church, engage in absenteeism, and eventually rely totally on govt largesse. This is our future sadly.

how do you steal the mellow of a hippy? or the zen of the buddhist? do i see a flagging analogy put forth as an argument of convenience?

The "zen" and "mellow" are not themselves the transferable wealth I'm speaking of. What is transferable is the social capital associated with all the accumulated experience, learning and sacrifice necessary to achieve those.

The monk is robbed when the church decides to confer equivalent status upon others who did not make the long years of sacrifice he did. Regardless of whether the church has practical or even virtuous reasons for doing so, the monk himself has his accumulated capital devalued and redistributed.

Someone will say, "but he still has his spiritual wealth". True, but it exists only in and of himself if you redistribute the outward aspects of that wealth. By the same argument, a monetarily poor person is not "poor" unless he allows himself to think of himself as such.

Inevitably, people who take this metaphysical line of reasoning have never actually been poor. And not surprisingly, it is also these same folks who are most agitated by any attempt to devalue their non-monetary social capital.

You just try to steal that hippi's mellow by declaring lots of other foods organic (even if entirely scientifically justifiably so) and see how mellow he remains. Why do you think he's spreading manure over his moldy tomatoes with a shamanic yak horn now? It's because if he doesn't then he's no more "mellow" than the typical condo-owning Marina dweller.

Very few people are truly at peace with themselves in isolation of all else. Very few. It is not human nature. We are social animals with a built-in need for comparative status, no matter how much some people try to wish that away.

Taxes are for suckers to pay. Lovers of freedom find a way out of that oppressive system and become free riders on the backs of sheep.
Lovers of government create nothing but evil.

Randy,

I don't know about hippies, but most monastic communities (as opposed to the Xian Right, which just coinicidentally does not have monastic communities) do share their good karma with their community.

I think you're entirely too harsh on the local foods and organic community. Many of these people are very tough, practical, and serious minded. They're coming to substanable agriculture not because they have some pie in the sky idea (that sort fail very quickly) but often through experience. Commercial agriculture is horrible for the land, horrible for the workers, and horrible for animals.

I'm quite happy to pay a premium for local produce and humanely raised meats. I don't think it makes me more enlightened and I get the sense most organic farmers don't either. They're too busy with farm work to gloat.

In theory, a combination of consumption taxes and estate taxes could stike a good balance. The consumption taxes discourages frivilous consumption. The absence of an income tax encourages productive activity. The estate taxes reduces intergenerational accumulation of wealth. When paired with the consumption taxes, it hopefully creates the following scenario: You can't leave your fortune to your kids, and so you're encouraged to spend it in a way that will enable your kids to be productive (e.g., education, creation of businesses, etc.) if they want to maintain a wealthy lifestyle.

I am sorry, but I still don't understand why we need anything other than local and (maybe) state taxes.

I agree with most of what HARM posted in the topic today, but why accomplish social objective by taxation at all? Let us call charity what it is - charity. And charity should always be voluntary, not forced.

I know I am one of the very few who think this way, but I just put my 2 cents in (voluntarily, of course).

"in my book. Australian Aboriginals have no strong sense of personal property, everything is the collective property of the tribe and is exchanged freely on request as the need arises to use it"

How noble. At that level of development, the hunting and gathering grounds can be owned collectively. Personal items are easy to defend and easy to replace. This is the level of society where soc1alism works. Once you evolve to agriculture or industry, where some individuals must own property to have the incentive to produce (that is, without the king-priest-slave approach), then soc1alism becomes obsolete.

How about a more mobile approach? If you prefer to make your fortune like Randy or Malcolm, stay in a market economy like the USA. If you want a light work week and prefer lower wealth but more social time, move to England. And if you do not mind being poor as long as everyone else is too, try Cuba. Variations on these themes are available in Canada, OZ, France, Sweden, etc. If you want to be "noble," live with the Australian Aboriginals, or various African or New World Indian tribes.

You had me there DS, until this line:

the ’self made’ millionaire was able to manipulate others and their economic relations in a way that disproportionately benefitted him or herself at everybody else’s expense.

This is where we part ways. You think that economics is a zero-sum game, where one person's success inevitably comes at another's expense. That is simply not the way the world works, not even in Late Capitalism. Does Google add value to the world? Should the people who created that value share in the gains?

If you really think the Aboriginies are the way to go, go move in with them, no one is stopping you from adopting the lifestyle of a hunter-gatherer. Personally, I think that Penicillin, hot showers and the Internet are great inventions, not ones that I would voluntarily do without. What was the life span of your Noble Savage?

I part ways with RandyH on the appropriate level of taxes. Clearly, they are too low right now, since we are running budget deficits. Even if we left Iraq, we still need to pay off some of the public deficit before the Boomers retire, though thanks to the Republicans, we probably blew our best chance to do so. We will all be poorer in the future because of this economic foolishness.

I would be willing to bet money that the marginal tax rates are going to go up in 2009, probably to the Clinton-era levels. Are you really planning on making good on your threat at that point and leaving the country RandyH? Most places worth living have even higher tax rates than the US, so I don't know where you would go. Monaco is quite nice though.

DS, per capita GDP doesn't work for me because I am more interested in what the median worker makes in different political and economic systems, not what the overall society makes. In the US in particular, the top 5% has done very well the last three decades, while income in the middle has been stagnant. You don't see that by looking at per capita GDP.

It is the old "five guys in a bar and in walks Bill Gates" problem with talking about average wealth.

Off Topic, but here's a guy who was going to be a "Self Made Millionaire" and has just gotten a clue.

http://tinyurl.com/2r2dlp

Bleeding 3k a month, not counting taxes/insurance/repairs/unrented downtime! Ouch!

"Bleeding 3k a month, not counting taxes/insurance/repairs/unrented downtime! Ouch!"

I wonder who he expects to take his offer? And how does putting up $175,000 qualify as "No down payment?"

Who ever does take this offer is the one we should tax.

At least he is honest about them loosing cash, and I believe he's trying to sell them at the price of the outstanding loan, not making any equity money on them.

sriram:
If we are going to have state and local taxes, they could be consumption and estate taxes as well, instead of income. I don't think our ideas for taxes are intended to be an addition to the existing schemes, but rather a replacement of them.

It's easy to think of taxes as charity in order to make an argument against them, but social engineering is always going to be present in some form. For "national security" alone you might want a study transportation infrastructure. You'll also want people developing new technologies, which means a strong educational system. Finally, you want to prevent epidemics, which means some form of public health monitoring/control. The question, as always, is where the line is drawn.

Neil Boortz's "The FairTax Book" addresses much of this.

Why do you think he’s spreading manure over his moldy tomatoes with a shamanic yak horn now? It’s because if he doesn’t then he’s no more “mellow” than the typical condo-owning Marina dweller.
I know that some of you none Bay Aryans think that Randy is kidding. He is not (plus he is smarting from the Mill Valley May numbers: a 6% increase in price per sq. ft... come on DQ, please post the June breakdown... this madness must stop).

I refer you to this Chronicle article on biodynamic farming.
Although Kinch couches biodynamics in "voodoo" terms, he insists on participating in all of the preparations, such as filling cow's horns with cow manure and burying them, then retrieving them six months later, making a watery preparation with the aged manure and flicking that solution over the crops with a paintbrush.

Some other formulas include those injected into compost. One consists of dried chamomile flowers stuffed into intestines (natural sausage casings) and buried underground for six months. A yarrow compost preparation consists of dried yarrow blossoms stuffed into the bladder of a deer, hung from a tree for six months then buried underground for another six months. Oak bark preparation, also used in compost, must be placed in the skull of a domesticated horned animal and buried for six months before it is used.

Wow, this thread really struck a nerve, I see. Of course, given the title, what should I have expected? Lots of excellent responses and ideas out there.

A federal VAT or federal GST-type doesn't seem out of the question to me, but, like some here, I don't see how you can attain less wealth disparity long-term without also having some form of estate tax and/or capital gains tax. If all you have is sales and income tax, then you end up with inter-generational asset barons that shuffle their family investment trusts/portfolios around, but avoid *real* productive work and (visible) consumption as a general rule --living off passive capital gains and passing entire fortunes along to their birth lottery descendants. End result: greater wealth disparity and even less class mobility.

Now, if we completely eliminate income tax, but keep a "flat" more-or-less asset-class neutral capital gains tax and similar estate tax & VAT/GST, that might fit the bill of "fair" and workable. Of course, what is likely to happen over time is, executive bigwig compensation will shift away from stock options in favor of salaries, but at least they have to do *something* taxable with the money (i.e., spend it, invest it, bank it). Then there's the added possibility of companies padding their payrolls with non-existent ghost "employees". But, hey, that's game theory 101 and no system's perfect.

In terms of mobility, where else but in France/Old Europe, could a Hungarian immigrant's son grow up to be President?

Oh, and for the record, I am not against people "making it" through hard work and brilliant ideas. Far from it --in fact I want more opportunities for people at the bottom to start small businesses and move up. However, where I part ways with some people here is in the (false) assumption that rich = exceptional, or the "most millionaires are self-made" canard.

This may be true of a very small minority of the wealthy & super-wealthy, but most rich people today either (a) inherited the bulk of it from parents/family, or (b) had a HUGE leg-up on everyone else by getting a free Ivy League college education, benefitting from having critical family/fraternity business connections, or (c) both. Even if Bill Gates Jr. had never inherited one thin dime from Bill gates Sr., he would *still* have had huge competitive advantages, connections and opportunities that simply do not exist for the rest of us common rabble.

Astrid

I am not meaning to unfairly attack organics and sustainability. I see the logic in it and think it has its place. But I draw the line at mysticism, voodoo and superstition. If people believe in that, and derive value from it, so be it. But when those premiums are hoisted upon me in any way as unavoidable costs then I object and call bullshit. I've argued previously that there is no practical mechanism, given scale, to feed the world over the next century without hyper efficient scale farming (so called factory farms) and hyper efficient GMO crops. But the sustainable crowd won't come out and say that their solution also means a magical reduction in population. I don't believe in magic. In my universe human populations are only reduced materially over short time frames through two methods, neither of which are particularly attractive.

By the way, I level the exact same set of criticisms at the homeopathic/naturopathic crowd when it comes to health. There's value in those practices, but when they try to discourage immunization programs or run around Africa trying to get people to not see the Doctors-without-Borders for their 4 year old's infection, instead engaging in some ritualistic hot rocks and massage therapy, I call bullshit. Perhaps they and their kids should go through a round of exposure to 1800s infectious diseases for a bit to educate them about the role science has played in allowing them to run around healthy and happy while thinking it was the gods and incense sticks that enabled their good fortunes.

And while we're clearing the record, I'll address the requisite "you only got rich by exploiting others" reactionary tripe.

a) It is economically untrue because economics are not zero-sum (as already pointed out).

b) Even if you don't buy (a), life isn't fair. You can make the same straw man argument about *everything*. In the 80s in undergrad I heard this over and over about gender disparity, racial disparity, geographic disparity, height disparity, beauty disparity...

c) Therefore the only truly fair thing to do is not try to be subjectively fair. Trying to be fair means picking winners & losers, which means picking losers, which cannot be fair to the losers. The honest thing to do is set a baseline, ignore subjectivity, and then allow people and the markets people create to organize themselves around those baselines, thereby having a say in whether they are winners or losers.

The problem with DS' argument is that I only was able to establish wealth because my planet happens to be close enough to the sun that its oceans didn't evaporate or dissolve, thereby enabling a species of sapient beings to arise. So my being rich is only because of the unfairness of my pre-determined advantages I had over the Martians.

In my universe human populations are only reduced materially over short time frames through two methods, neither of which are particularly attractive.

Are these what you had in mind?:
1) war/genocide
2) natural catastrophe (famine, plague, asteroid strike, etc.)

In my utopian fantasy of the world there would be some kind of flat tax with one and only one huge personal deduction. I don't think any kind of income, either passive investment income, capital gains, or salary, should be exempt from it. This would put a ton of accountants out of work, and eliminate the need for 90% of all tax lawyers, politicians, tax collectors, etc.

I think we should tax inheritances as well, or at the very least, disallow the current practice of people being able to "step-up" the basis upon inheritance. Right now, people can just totally avoid taxes on gains this way. It is not clear to me how this benefits society in any way whatsoever. There probably needs to be some kind of large exemption here, to avoid people having to break up the family farm or whatever.

There also needs to be some kind of way to charge people for externalities that they impose on others. This is where it gets tricky though, and opens the tax code to all kinds of social and political and economic issues.

But the truth is, I don't think we can implement any kind of radical change overnight, because it would cause all kinds of strange economic shocks. The current tax code is far, far too complex though. It is a huge drag on small businesses.

Randy,

I agree that some people take organics too far, into the realm of superstition. However, many organic techniques are a great thing. With those techniques, the Chinese in the Pearl River and Yangtze deltas intensively farmed for centuries without deterioration in their environment. Things like crop rotation, eating less meat, diverse agriculture, and not force feeding corn to cows (and the antibiotics that entails) are help everybody involved except Big Agra.

You can argue that the market should sort itself out...but are we as a society really willing to let nature sort itself out? Can this society really practice pure survival of the fittest AKA social Darwinism? Should society deny people who are genetically disposed to obesity die AND not support any children they leave? Should we let industrial agriculture run amuck and lay waste to our farm lands while the market sort itself out? (A similar policy didn't work out so well for Butte, MT).

I think the framing of this issue is all wrong and I do believe enlightenment lies elsewhere. Right now, we as a society think growth is desirable and inevitable...I don't think either is true. To grow further on this already crowded Earth means either depleting our resources at an ever faster pace until we all starve (much like natural animal populations boom and crash), or hoping and praying that miraculous technology advances will bail us out.

Why must it be this way? Can't humanity simply learn to live within its means? A few past communities have managed this before they overreached and its too late to turn back. However, as I mentioned before here, I'm not optimistic about humanity's chances.