Wednesday, January 2, 2013

Miles Kimball: Only consumption spending should be taxed

At Confessions of a Supply-Side Liberal, Miles Kimball gives us Scrooge and the Ethical Case for Consumption Taxation: has always seemed to me that it is when people spend money on themselves that they incur whatever debt to society the principles of taxation ought to imply.

In other words, according to Kimball, only consumption spending should be taxed.

Such a tax discourages spending, and encourages saving.

Such a tax may be appropriate at times when there is too much spending and too little saving. But let me be clear: It is appropriate when there is too much spending-money, and too little money in savings. For the effect of such a tax is to increase the stock of savings by reducing the quantity of money in the spending stream.

Graph #1: Total Savings Deposits (red) and Total Spending-Money (blue)

Graph #2: Total Financial Assets (red) and Total Spending-Money (blue)

Depending on the data you look at, the quantity of money in savings is already either substantially or massively greater than the quantity circulating. Since the 1970s my graphs have been telling me that we need to get money out of savings and back into the spending stream. Just the opposite of what Kimball wants.

Adam Smith: Consumption is the sole end and purpose of all production...

Maynard Keynes: Consumption — to repeat the obvious — is the sole end and object of all economic activity.


Benjamin said...

Interesting post.

I, roo, have long thought consumption taxes and PIGOU taxes the way to go (perhaps exempting food and medical for humanitarian reasons).

But I think the right response to "too much savings" is having the Fed conduct QE hot and heavy.

Yes, print money and buy federal IOUs with it. As a nation, we radically deleverage.

The people who sell Treasuries can either spend ithe money or invest. Good either way.

If sellers of Treasuries they insist on just banking the money, and the banks refuse to lend the money out, then we can pay off the entire federal debt.

If that doesn't work, then we just run the federal government on printed money, Sooner or later we get the growth and then inflation we want.

Greg said...

So many fallacies in that guys post I think.


"Most of the popular discussion about tax fairness focuses on how much money people make. But it has always seemed to me that it is when people spend money on themselves that they incur whatever debt to society the principles of taxation ought to imply."

Always seemed to me?? Dont spend money on yourself........ SAVE money for yourself!! Consumption spending incurs debts to society?!

"Suppose first that I made $10 billion, and gave all but $100,000 of it away to take care of the poor. "

Well, you made 10 billion because someone else SPENT ten billion!! AInt no other way!

"Should I really be taxed on the $10 billion that I no longer have, but already gave away, or only on the $100,000 that I then actually spend on myself? And with that much of the task of taking care of the poor removed taken off of the shoulders of the government, won’t it have enough money from taxing everyone’s spending to take care of the other necessary tasks of government?'

Currently we do give exemptions for charitable donations, should they be bigger...... maybe.... but we still have to look at what gets labeled a "charity"

"Next, suppose I save the money. Then it is still indeterminate whether I will eventually spend the money on myself or give it away. Shouldn’t the government wait until it is clear whether I will spend the money or give it away to take care of the poor before the government taxes it? "

Maybe. But this type of tax policy must be run in conjunction with NO efforts to balance federal budgets. Balanced budget amendments (federal) shall never be considered again

" Here, notice also that in saving the money for later use, I am making resources available for building factories or other places of business, which employ people."

Not true. Investemnt precedes saving, not vice versa. Your saving does not help everyone unless you spend it on everyone. Loanable Funds theory is a sham.

"If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer—because you produced a dollar’s worth of goods and didn’t consume them."

If you build a house you bought a house form a builder, unless you cut down your own trees and used your own dirt to make bricks and did the work yourself. And in the end YOU are one house richer, not the rest of the world, same with the dollar. In fact you saved a dollar because the rest of the world spent it. This guy seems to think we all have control over our own incomes.

"Postscript. Most of the tricky issues that remain after saying this much fall under the heading of defining “consumption spending.” But I maintain that income is much harder to define than “consumption spending” is."

Disagree. Income is simply ALL flow of money which comes your way, in whatever form. Consumption is much more nebulous I think. This guy typically wants to moralize about consumption. All producers want their product consumed..... are producers encouraging immoral behavior??!!

Can you tell that this guys post really bothered me?

Happy New Year Art!!

The Arthurian said...

Thanks, Benjamin! I will have to think about what you are saying. I should say, though, that private debt worries me a lot more than public debt. And... I don't call for inflation. I don't think wages will keep up with prices, for one thing.

Haha Greg. Yeah, the "always seemed to me" bothered me, too. ( I deleted that paragraph from my response... I'm soooo judicious.) And wow, can I tell Kimball's post bothered you!

Happy New Year to you.