Tag Archives: taxation

11.24.2011 | A Plymouth Plantation Reprise

Perhaps even more relevant today, this was our blog for last Thanksgiving:

In 1623, two years after the first Thanksgiving, Governor William Bradford was worried about Plymouth’s food supply. The problem, he concluded, was that people shared whatever they produced. Because “able and fit” young men were expected to work harder and then give their food to others, all worked less.

As Bradford explained it in Of Plymouth Plantation,”So they began to think how they…could…obtain a better crop than they had done…At length…the Governor…so assigned to every family a parcel of land…This had very good results for it made all hands very industrious…”

You can see what happened. When people could keep what they produced, they became more industrious.

The Economic Lesson

Equality or efficiency was a dilemma in 1623 and remains a dilemma today. The basic question involves how much of what we produce should we keep?

Maybe, especially on Thanksgiving, we can say it all takes us back to the size of the pie.

An Economic Question: At what level, from 10% to 60% of your income, do you believe that taxation would affect your ambition and incentive to innovate?

Posted by: adminEcon
Tags: equality or efficiency, innovation, Plymouth Plantation, taxation
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11.20.2011 | California and Kentucky

Could we compare California’s relationship with Kentucky to Germany and Greece?

Somewhat like Germany and Greece…

California and Kentucky share the same currency.
California has a more vibrant economy than Kentucky’s.
Workers in California earn more than workers in Kentucky.

And yet, even though they are more productive and more affluent, California residents do not complain that a higher proportion of Kentucky’s residents receive Medicare and Medicaid funds.

Could we say that we in the US comfortably support “have” states’ taxes going to the “have-not” states while German citizens resist similar support for Greece? The parallel is inexact but it is interesting to contemplate.

The Economic Lesson

Now, as we try to diminish our deficit, the issue of redistribution resurfaces. Taking money from one group and using it for another, taxation redistributes income. Also though, by spending less, we are making a statement about redistribution.

An Economic Question: Specifically noting “from” and “to,” how might different kinds of taxes redistribute income?

The idea for today’s post came from this blog. Please do note that contrary to what that blog implies, California has a higher unemployment rate than Kentucky.

Posted by: adminEcon
Tags: California, Germany, Greece, Kentucky, taxation
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05.18.2011 | An Optional Income Tax

What if you could decide whether to pay an income tax?

Boston University economist Laurence Kotlikoff has a plan that gives us a choice. His basic message, though, is that Congress had better start to think creatively because our current system is “dysfunctional.” With a new approach, we can create better incentives.

Hoping to prove that neither liberal nor conservative ideas will work, he starts by explaining why an income tax and a sales tax are similar. Both affect our purchasing power and purchasing decisions. One just happens beforehand because it limits what we can spend while the other is after because it makes purchases more expensive. You can read his 3 billion steak example (!) here.

He calls his plan the purple tax because it combines a red state philosophy (with revenue primarily coming from a sales tax instead of an income tax) and a blue state approach (dependence on an income tax for most revenue). Red + Blue = Purple. The purple tax plan lets people decide whether they want to pay a sales tax or a “wealth” tax. You can see the details here.

The Economic Lesson

Sometimes, when you look at something different, you can better judge something that is familiar. By considering the purple tax, you can see our current tax system as just an alternative approach.

The most typical tax approaches include revenue coming from individual income, corporate income, and the VAT. Smaller categories are estate taxes, capital gains, sales taxes, and tariffs.

An Economic Question: The proposal for the purple tax plan says that it will “help the economy save, grow, produce jobs, and deliver high wages.” After looking at a summary here or the plan here, decide whether you agree.

Posted by: adminEcon
Tags: incentive, income tax, purple tax plan, Sales tax, taxation
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05.07.2011 | Grade Redistribution

In this video, college students approve of proposals to “tax the rich.” However, when asked if those in the top 10% of GPAs should have their grades redistributed, they emphatically say, “No.”

But, is income redistribution really that different from grade redistribution?

Students were told that a 4.0 could be considered excessive. They were reminded that some of their peers had lower GPAs because they had to work. Others with less ability were struggling and might not graduate. All of the high grade earners just had to give a little of their GPA to others. They refused.

I know, grades and income feel different. But no one could come up with really good reasons that explicitly distinguished the two.

In an Atlantic commentary, economics editor Megan McArdle concludes that, “…most of us just want to redistribute income because, well, we wanna…not because we have any particularly good reason…”

You might want to refer to this econlife for some tax insights.

The Economic Lesson

Contemplating taxes takes us to three approaches: Progressive taxation takes a higher percent from those who have higher incomes. Regressive taxation takes a higher percent from those with lower incomes. Proportional taxation takes the same percent from all. Our current individual income tax approach is progressive while a sales tax is regressive.

An Economic Question: In a debate, how would you support a progressive approach to grade redistribution? Could any of your arguments apply to a progressive approach to income redistribution?

Posted by: adminEcon
Tags: fiscal policy, grade redistribution, progressive taxation, tax redistribution, taxation
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10.29.2010 | Mankiw and Colbert

For some smiles and econ also, the following links are fun.

It all began with Harvard’s N. Gregory Mankiw’s NY Times op-ed column on higher tax rates. Explaining, he said that $1000 wisely invested, with no taxes, became $10,000 in 30 years. By contrast, letting the Bush tax cuts expire slices that $1000 to a $523 check which other taxes further deplete. The result? In 30 years, the amount grows to $1700. Knowing that he would have considerably less to save for his children could result, he said, in writing fewer columns.

Stephen Colbert responded to Mankiw here. And, after that, Mankiw’s students replied to Colbert.

Smiling at the exchange, we can also consider the debate about tax rates and see how Dr. Mankiw’s students used demand and supply to present the impact of Colbert on their teacher.

The Economic Lesson

In Teaching Company Lecture 3, from “History of the U.S. Economy in the 20th Century,” Professor Timothy Taylor describes a roller coaster of tax rates. Starting from a top 77% rate after World World I, rates then descended more than 40%. Taylor tells us that while tax rates fluctuated considerably, tax revenue remained remarkably constant then and at other times during the 20th century.

Posted by: adminEcon
Tags: Bush tax cuts, N. Gregory Mankiw, Stephen Colbert, taxation
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