First blogging success!

A previous post on taxes, generated a comment from jeffy that pointed me to a book titled Tax Shift. Wow three link in one sentence. Well, I am about half way through the book and it has turned into one of those treasures where you start with an idea that seems original and then you find a book that takes your idea and does all of the research for you and expands it to realms that you never thought of.  Well this happened to me. 

Lately I have been thinking how consumption and not work should be taxed as a way of encouraging work and investment while discouraging the waste of resources.  Well, Tax Shift lays out how this might work in the Northwest.  I will be giving a much more complete review when I am done with the book.  Thanks jeffy!!

So, my Utopian dream of blogging (see about) came true within a few weeks.

Comments

[Peter]

Erik, I've been meaning to comment on this for a little while and thought I would do it up here as it is a more recent post. In your original post on a consumption tax you state:

"Although I personally prefer a consumption tax, I am not entirely convinced that it is better economically. Take the sports car example. Buying a fancy car is not just burning money (well OK for me it is). The car requires gas, servicing, insurance, etc. Buying a car like many purchases forces the consumer to support many other economic institutions."

These purchases do support many other economic institutions but in order for the economy to function much more is needed. Gas, servicing, etc. are all 'consumptive' expenditures. You buy the gas, you burn it up while driving... you buy a new alternator, it immediately starts wearing out. Now these purchases keep the gas station or auto-repair shop in business as a large segment of the economy exists to produce goods we consume to better our lives. But if all purchases were 'consumptive' we'd be living in something comparable to the dark ages in short order. Everything we have would eventually be consumed.

What keeps the economy afloat is 'productive' expenditures. For example, the guy at the gas station receives the $2 you pay him for a gallon of gas, but he can't just go out and blow the entire amount because he needs to reinvest some of it. A reasonable estimate would be that he needs to spend $1.90 of the total buying more gas to sell. It's an expenditure that is for the purpose of further production (i.e. making money). That's the kind of expenditure that gets us better and cheaper products (i.e. economic growth).

That is the point of a national sales tax. The owner is not taxed on the $1.90 he reinvests in his business, nor is he taxed on the remaining 10 cents if he invests it in someone else's busniness. He's only taxed if he uses this 10 cents to buy something he is going to consume.

I'm looking forward to your review of Tax Shift. It sounds like an interesting book that incorporates the above concepts.

[Erik]

Thanks for the econ lesson Peter. Let me try to paraphrase: a "productive expenditure" is one that is spent with the intention that it will bring income in the future. A "consumptive expenditure" meets another non-monetary need. I think that we both agree that it is the "consumptive expenditure" that should be taxed.