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It's good, but it could be even better : Comments
By John McRobert, published 22/11/2011
Today we worry about pollution, yet prosperity is the answer to that problem.
McRobert wrote: "From 1750 to 1850 the population grew 300 per cent, and they all had to eat." Two sentences later he contradicted himself: "Many left involuntarily under a Government export program to 'assist' certain of the poor who were reduced to stealing a loaf of bread or poaching wildlife because they were hungry."
But let's get to the point. McRobert is the leading advocate of the 2% cascading turnover tax, which became the tax policy of Pauline Hanson's One Nation for the 1998 federal election. How does a 2% tax replace a 30% income tax and a 10% GST? By eliminating deductions for inputs, so that the 2% rate hits the full value of every exchange, not just the profit margin or value added.
This of course will invite a new avoidance technique, namely VERTICAL INTEGRATION -- that is, minimizing the number of transactions in the supply chain by keeping everything in-house. Of course this favours big companies and locks out smaller start-ups. Of course the shrinkage of the base due to vertical integration will require an increase in the rate, which in turn will encourage more vertical integration, and so on, until the economy is reduced to an oligarchy with a very high and very visible tax on the final sale to the domestic or foreign consumer. In which case you might as well just have a whopping great RETAIL TAX, which neither rewards vertical integrators nor penalizes exporters.
If "successive governments continue to attempt to tax prosperity to its knees" and if "Productivity is the key to prosperity", then how it is helpful to tax EVERY productive exchange? A retail tax, for all its faults, at least has the virtue of targeting consumption rather than production (as far as the two can be separated). A "land value tax" taxes neither production nor consumption, but imposes a holding cost on an irreplaceable asset, compelling the owner to use the asset productively in order to defray the holding cost. That's how to encourage productivity.
[Continued below.]
Posted by grputland, Tuesday, 22 November 2011 11:08:00 AM
[Continued from above.]
A retail tax or a "land value tax" would avoid the "Questions questions" posed by a flat income tax but, unlike a cascading turnover tax, would avoid any new questions caused by vertical integration.
"A 2% spending tax should not be confused with a bank transactions tax which has major disadvantages," says McRobert, without specifying what those disadvantages are -- perhaps because the disadvantages of a bank transaction tax are too similar to those of a turnover tax: both taxes can be avoided by avoiding the taxable transactions.
"The worst feature of the current tax system," says McRobert, "is its surcharge on the cost of labour (group tax, payroll tax and superannuation levy plus complicated admin expenses) all carried [out] by the employer."
And how is it better to have multiple layers of transaction tax burying themselves in prices of inputs and inserting themselves between prices received by suppliers and prices paid by consumers?
"The employee receives the same take-home salary as before..." Yes, you can do that with a turnover tax. You can also do it with a consumption tax: http://www.grputland.com/2009/01/how-left-could-learn-to-love-retail-tax.html .
"Paradoxically the GST/BAS mechanism provides the perfect mechanism for change to the new system. The BAS return would become a simple 2 liner..."
With a retail tax it would be a one-liner if you're a registered retail business and a zero-liner if you're not. With a "land value tax" it's a zero-liner in the sense that there's no self-assessment; you just pay the bill.
Concerning the "continent sized tax haven", note that (i) a retail tax is a tax haven for any producer whose products are exported from the jurisdiction; and (ii) a "land value tax" is a tax haven for all and sundry because it can't be passed on to renters, while buyers of land are compensated by the market through lower purchase prices.
I enjoyed the first part of your "Ripping Yarn", John McRobert, though you ought to know that the innovators of the genre were being decidedly ironical in their Blimpism; your condescension towards Australia's traditional owners and celebration of industrialisation seems sincere!
But never mind that.
Then you come up with this gem:
<Today we worry about pollution, yet prosperity is the answer to that problem. Productivity is the key to prosperity and efficient utilisation of the Earth's resources which to all intents and purposes are limitless (no matter how much you mine, the Earth still weighs the same)>
This puerile logic is exactly what I've grown accustomed to from mad-optimistic neoliberals, but it deserves closer scrutiny because it, especially the clause in brackets, amounts to your raison d'etre for continuing.
Are you familiar with the concept of entropy?
Here's a short piece you ought to read that makes a mockery of your indifferent premise: <no matter how much you mine, the Earth still weighs the same)> http://tinyurl.com/7uv25c9
Once you've read this and realise how wrong you are, will that make a difference to your anodyne economics?
I doubt it; you'll just come up with some other rationale.
Posted by Squeers, Tuesday, 22 November 2011 11:50:15 AM
Nothing like being critised by an old adversary who still uses theoretical rhetoric extracted from the pages of first-year economics courses.
Economists are taught that transaction taxes cascade, and are therefore intrinsically bad. Bank transaction taxes ARE bad, but for many other reasons as explained in my book 'Your Future in Your Hands', and in our submission to the Senate inquiry of 2003 (Submission No 56).
The proposed 2% spending tax has nothing to do with bank transactions. The Buyer pays the Seller 2% over and above the asking price, and the Seller is responsible for remitting this to the government as their reward for the service of providing stable currency and basic governmental services.
Now here's the rub as Shakespeare would say. Let's put the 2% Spending tax to the test in a worst-case situation of a multi-stage manufactured product. One example we tested showed the 2% tax cascaded through to approx. 13% of the final retail price. Compare this with the cascading melange of taxes (even ignoring the cost of accounting for the complicated mess) that exist today, of 28% of the price of the finished product. And this is before the disreputable carbon tax kicks in.
And as far as the theoretical bogie-man, VERTICAL INTEGRATION, is concerned, I experienced at first hand the biggest vertical integration ever, when the processing and manufacturing giant, GE took over the company for which I worked, Utah Development as GE attempted to control the entire production chain, from the minerals in the ground to the washing machines and toasters in the homes of the consumers. It was a marriage doomed to fail. The GE culture was far removed from the mining mindset which has big wins and big losses and works over long time frames. GE wanted annual increases in the profits from every department, and Utah was going through massive setbacks (mainly through ill-thought out and imposed mining taxes and restrictions in Australia). GE searched the world to find a buyer for this unpredictable company, and BHP purchased us, to get offshore and away from the capricious Australian tax system.
Posted by John McRobert, Wednesday, 23 November 2011 10:19:52 AM
Micro economists get small things wrong, and the macro ones specialise in getting big things wrong. Regarding the dreaded Vertical Integration, on the micro scene, I once worked for a huge mining company which depended on a swarm of suppliers, from consulting engineers to contractors to photocopy suppliers, paper suppliers, caterers, accommodation (dongas, houses, motels), transport, the list goes on and on. There is no way any company can be big enough to vertically integrate all of these, and for the paltry saving of a 2% tax. Mr Putland should get real.
A land value tax is for those who love control. It is like putting Dracula in charge of the blood bank. Land valuations are a joke and so far removed from market valuations as to be just another great pretense. Please think about this self evident statement. THE ONLY TIME ANYTHING HAS A PROVABLE MONETARY VALUE IS AT THE MOMENT OF SALE, WHEN THE BUYER AND THE SELLER AGREE THE PRICE. One millisecond later, the monetary value of the sold commodity may be anything or nothing. That's the only thing which can be precisely and consistently measured and fairly taxed
But thank you Mr Putland for at least signing your name.
As for the anonymous Squeers, I am indeed familiar with the concept of entropy. I am also fairly well read on the nature of carbon-based resources and of the incredible reserves with which we have been endowed. Have you read the story of Nikola Tesla, 'Prodigal Genius'? Also Thomas Gold wrote a thought provoking book 'The deep hot biosphere'. We ain't seen nothing yet as far as efficient utilisation of the Earth's resources is concerned. But King Coal has brought us breathing space and the relative prosperity to research and develop these. And the idiots in power wish to tax 'carbon'. Farewell Mr Squeers or Sneers or whatever you wish to be called. You can have the last say but it is pointless to debate with faceless, nameless people who I can only assume are part of the spin doctor army, paid to peddle political propaganda.
John McRobert wrote: "The proposed 2% spending tax has nothing to do with bank transactions."
Agreed. I only said that "both taxes can be avoided by avoiding the taxable transactions." I didn't say the taxable transactions were the same in both cases, because they're not.
McRobert continued: "One example we tested showed the 2% tax cascaded through to approx. 13% of the final retail price."
In which case it would raise as much revenue as a 13% retail tax. The latter would involve one layer of compliance costs instead of several, and would not penalize exporters.
As Mr McRobert apparently knows the evils of vertical integration at first hand, that should give him all the more reason not to incentivize it.
Posted by grputland, Wednesday, 23 November 2011 11:01:43 AM