I have been taken to task for suggesting that federal taxes on corporations are probably unnecessary and counter productive. It was suggested that corporations should shoulder their share of the cost of the utilities and services they use. That this may be true depends on who is providing these services.
If the federal government, the sovereign, provides the service, such as an interstate highway, then there is no connection between taxes and the expenses. The sovereign issues the money it needs to provide and maintain the services. It has no need to acquire the money first, in fact it really can’t. The only reason it may need to plan a tax is to control the price of goods and services it needs or to lower an overall demand problem.
If, however, it is a local agency, such as a state, city, etc. that provides the service the scenario changes completely. Why? Only the sovereign and issue money; all other entities are users and cannot issue the national currency. Therefore if they wish to pay for the maintenance, they must acquire the money first, either by taxing, borrowing, or a federal grant.
The necessity of taxing corporations at the federal level is open to question because the functions that federal taxes fulfill is totally different than taxes imposed by agencies below the federal level. At these lower levels tax revenue goes directly to pay for the goods and services that these agencies provide and, therefore, corporations, like everyone else should pay to offset what they use.
Showing posts with label Money. Show all posts
Showing posts with label Money. Show all posts
Wednesday, May 29, 2013
Monday, May 27, 2013
Should corporations be taxed?
Listening to an online conversation last evening and, as an aside, I wondered whether corporations should be taxed, at least as far as the income tax code goes. I cannot see that it serves a useful purpose.
The first question that must be asked is what taxes actually pay for. Taxes, in our present economic system, do not pay for anything. (I can hear brain cells, especially Stuart's, screaming from here.)
Please relax and bear with me as I suggest the logic behind that previous statement. Since August 15 1971, our economy has been operating with a fiat currency. To clarify, this means that our sovereign government has declared, by a fiat, that the currency it issues or symbolic entry on its records of that currency are legal tender for the resolution of debts in the country. Further that the government offers no convertibility of its currency to any other commodity.
In order to create a demand and hence a market value for this currency, the sovereign creates and imposes taxes, a debt that can only be removed using the currency that the sovereign has issued. This is one of the three purposes taxes serve in the economy.
A moment's reflection will reveal that the sovereign, in this scenario, is quite free to issue all currency it needs to pay for the goods and services it needs and or wants. It has no need to tax or indeed borrow; in fact, it cannot tax or borrow until it spends, there is nothing in the economy for it to collect.
The spending, for infrastructure, public care, grants for public services, and military, move money from the public sector, the government, to the private, basically us. With this money the private sector can pay its taxes and then buy goods and services it wants. Assuming there are sub-sectors within the private of individuals willing and able to provide goods and services the cycle repeats until the supply ends.
If there is too much money pushed into the economy, demand can outstrip the supplier's ability to deliver. The government must watch for this by watching unemployment and other signs of inflation like rising prices and supply sources reaching full capacity. When these signs do appear, the government must move to curb the demand pressure. It can do this by decreasing spending or increasing taxes.
Note carefully: The DIFFERENCE between government spending and government taxes is referred to as the deficit. In order to control expansion or contraction of the economy it is the deficit that must be adjusted, not necessarily spending or taxes alone.
Once again, we have a important need for taxes, but once again we see that taxes are not used to actually pay for anything but just to balance spending by the government on what it wants.
Taxes have a third function. Taxes can be used to curb behavior that the government considers detrimental. There are an number of examples that come to mind but the one that seems to have disappeared, definitely to the detriment of our society, is the marginal tax rate on high incomes.
Money is an indisputable source of power. An individual or small group of individuals can, and indeed do, challenge governmental powers based on accumulated wealth. By placing a high tax on income over, say, $1,000,000, the sovereign power is protecting itself against challenge by a small minority.
Again, an important use for taxes; however, the revenue from this source would be too small to be considered useful in controlling the deficit.
Now, based on this chain of logic I argue that taxes don't pay for anything and, further, that taxes on corporations are likely counter productive. Corporations are not brought into existence to earn money for themselves and to pay taxes that may be imposed. In their simplest form, they exist to fulfill a demand, not create one. That they may be the source of a demand for good and services is only a reflection of the demand they are trying to fulfill.
Finally, corporations are not sentient. They only move according to the people behind them. Corporations do not, on their own, challenge governments. Taxes on a corporation serve only to test the ingenuity of the corporate officers in avoiding the taxes; it is the individuals who form the actual "brain" that must concern the government and ultimately us.
Remember, Al Capone, a reputed crime boss suspected of many crimes, as brought to court and sent to jail for --- INCOME TAX EVASION!! And you thought taxes weren't important.
The first question that must be asked is what taxes actually pay for. Taxes, in our present economic system, do not pay for anything. (I can hear brain cells, especially Stuart's, screaming from here.)
Please relax and bear with me as I suggest the logic behind that previous statement. Since August 15 1971, our economy has been operating with a fiat currency. To clarify, this means that our sovereign government has declared, by a fiat, that the currency it issues or symbolic entry on its records of that currency are legal tender for the resolution of debts in the country. Further that the government offers no convertibility of its currency to any other commodity.
In order to create a demand and hence a market value for this currency, the sovereign creates and imposes taxes, a debt that can only be removed using the currency that the sovereign has issued. This is one of the three purposes taxes serve in the economy.
A moment's reflection will reveal that the sovereign, in this scenario, is quite free to issue all currency it needs to pay for the goods and services it needs and or wants. It has no need to tax or indeed borrow; in fact, it cannot tax or borrow until it spends, there is nothing in the economy for it to collect.
The spending, for infrastructure, public care, grants for public services, and military, move money from the public sector, the government, to the private, basically us. With this money the private sector can pay its taxes and then buy goods and services it wants. Assuming there are sub-sectors within the private of individuals willing and able to provide goods and services the cycle repeats until the supply ends.
If there is too much money pushed into the economy, demand can outstrip the supplier's ability to deliver. The government must watch for this by watching unemployment and other signs of inflation like rising prices and supply sources reaching full capacity. When these signs do appear, the government must move to curb the demand pressure. It can do this by decreasing spending or increasing taxes.
Note carefully: The DIFFERENCE between government spending and government taxes is referred to as the deficit. In order to control expansion or contraction of the economy it is the deficit that must be adjusted, not necessarily spending or taxes alone.
Once again, we have a important need for taxes, but once again we see that taxes are not used to actually pay for anything but just to balance spending by the government on what it wants.
Taxes have a third function. Taxes can be used to curb behavior that the government considers detrimental. There are an number of examples that come to mind but the one that seems to have disappeared, definitely to the detriment of our society, is the marginal tax rate on high incomes.
Money is an indisputable source of power. An individual or small group of individuals can, and indeed do, challenge governmental powers based on accumulated wealth. By placing a high tax on income over, say, $1,000,000, the sovereign power is protecting itself against challenge by a small minority.
Again, an important use for taxes; however, the revenue from this source would be too small to be considered useful in controlling the deficit.
Now, based on this chain of logic I argue that taxes don't pay for anything and, further, that taxes on corporations are likely counter productive. Corporations are not brought into existence to earn money for themselves and to pay taxes that may be imposed. In their simplest form, they exist to fulfill a demand, not create one. That they may be the source of a demand for good and services is only a reflection of the demand they are trying to fulfill.
Finally, corporations are not sentient. They only move according to the people behind them. Corporations do not, on their own, challenge governments. Taxes on a corporation serve only to test the ingenuity of the corporate officers in avoiding the taxes; it is the individuals who form the actual "brain" that must concern the government and ultimately us.
Remember, Al Capone, a reputed crime boss suspected of many crimes, as brought to court and sent to jail for --- INCOME TAX EVASION!! And you thought taxes weren't important.
Monday, June 6, 2011
The Government can't go broke #1
Much of the public debate on today’s economic issues is invalid, often going so far as to confuse costs with benefits
We (The US) operate in a "Fiat" money system. The "Gold Standard" was abandoned in 1971, forty years ago but public and government opinion operates as if the Gold Standard was still in place..
There are two categories of government money: Commodity and Fiat.
Commodity money is backed by - a commodity: Rice, Gold, Sea Shells, Oil, whatever. Gold is nice because it doesn't rust, rot, or evaporate and it's pretty.
In a commodity based system there are three interesting facts:
1. The government can go broke.
2. The government must tax or borrow to spend. And
3. The government has limited control over the value of its own currency.
Fiat money Is backed by - pretty much nothing. ( I know - Full Faith etc. Not really worth anything.) But the facts about Fiat money are quite interesting.
1. The government CANNOT GO BROKE. (that should be etched across every politicians head.)
2. The government must spend in order to tax. And
3. The government has almost complete control over the value of its money.
The government must spend before it can tax???? There must be deficit spending???? Gasp!!!
Think about it. The government levies a tax on - something - and says it can only be paid in the currency it approves. But where does that currency come from and how do you get any? It is obvious that the government must hand out the money to people BEFORE it can collect taxes. It can build roads, hire an army, pay doctors to help the sick, hire people to keep score (keep the spread sheet). You might farm food for the road builders (or the army) and sell it for - that currency you need to pay taxes (and, perhaps buy a TV).
Thus what really gives the currency value (forget about Full Faith etc.) was the fact that it is the only thing you could pay your taxes in.
So, taxes are useful to give the currency value. But it has another function that is equally important: Taxes (and borrowing) serve to drain excess currency out of the market.
What's with that?
Suppose the government buys a lot of stuff. Suppose everyone is fully employed and buys a lot of stuff. What? There isn't enough stuff to go around? Prices are going up? There is INFLATION???
What to do? Oh! Tax and borrow and drain excess money (and buying power) out of the market. Ease up on the gas pedal (deficit spending) and touch the brake (taxes and borrowing).
Oh dear, employment is falling and facilities are standing idle!!
What to do? How about spending more on, say, the infrastructure, giving grants to states and towns to upgrade their facilities. Make sure everyone has health care. Provide support for local schools. Subsidize fuel efficient cars and research into renewable energy. Oh! And cut taxes on middle and lower income workers; you know, the ones that will actually spend money in the market place.
Remember this if nothing else: In a fiat monetary system and there are no debts in any other currency or commodity, THE GOVERNMENT CANNOT GO BROKE!!! Never! Never!
We (The US) operate in a "Fiat" money system. The "Gold Standard" was abandoned in 1971, forty years ago but public and government opinion operates as if the Gold Standard was still in place..
There are two categories of government money: Commodity and Fiat.
Commodity money is backed by - a commodity: Rice, Gold, Sea Shells, Oil, whatever. Gold is nice because it doesn't rust, rot, or evaporate and it's pretty.
In a commodity based system there are three interesting facts:
1. The government can go broke.
2. The government must tax or borrow to spend. And
3. The government has limited control over the value of its own currency.
Fiat money Is backed by - pretty much nothing. ( I know - Full Faith etc. Not really worth anything.) But the facts about Fiat money are quite interesting.
1. The government CANNOT GO BROKE. (that should be etched across every politicians head.)
2. The government must spend in order to tax. And
3. The government has almost complete control over the value of its money.
The government must spend before it can tax???? There must be deficit spending???? Gasp!!!
Think about it. The government levies a tax on - something - and says it can only be paid in the currency it approves. But where does that currency come from and how do you get any? It is obvious that the government must hand out the money to people BEFORE it can collect taxes. It can build roads, hire an army, pay doctors to help the sick, hire people to keep score (keep the spread sheet). You might farm food for the road builders (or the army) and sell it for - that currency you need to pay taxes (and, perhaps buy a TV).
Thus what really gives the currency value (forget about Full Faith etc.) was the fact that it is the only thing you could pay your taxes in.
So, taxes are useful to give the currency value. But it has another function that is equally important: Taxes (and borrowing) serve to drain excess currency out of the market.
What's with that?
Suppose the government buys a lot of stuff. Suppose everyone is fully employed and buys a lot of stuff. What? There isn't enough stuff to go around? Prices are going up? There is INFLATION???
What to do? Oh! Tax and borrow and drain excess money (and buying power) out of the market. Ease up on the gas pedal (deficit spending) and touch the brake (taxes and borrowing).
Oh dear, employment is falling and facilities are standing idle!!
What to do? How about spending more on, say, the infrastructure, giving grants to states and towns to upgrade their facilities. Make sure everyone has health care. Provide support for local schools. Subsidize fuel efficient cars and research into renewable energy. Oh! And cut taxes on middle and lower income workers; you know, the ones that will actually spend money in the market place.
Remember this if nothing else: In a fiat monetary system and there are no debts in any other currency or commodity, THE GOVERNMENT CANNOT GO BROKE!!! Never! Never!
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