Sunday, October 19, 2008

But seriously, folks ...

Back when I was in college the first time, I was on the student paper. One story I covered involved a grad student. This student was from Africa, and while studying in the US it was found he had leukemia.

The county had a fund, paid as part of sales and property taxes, the purpose of which was to handle catastrophic medical fees for residents who could not pay them. There were many people who thought that, as awful as the story for this student is, he isn't a US citizen and should not benefit from this fund.

The argument that won me over, and, if I recall the events of nearly 20 years ago correctly, won the county council over, was that this person lived in this county before he was diagnosed, and that while a resident here, he paid taxes to the county in the form of sales tax, and either directly as a homeowner or indirectly as a renter, paid property tax. Since he paid into the emergency medical care fund in good faith, and now was in need of emergency medical care, it was only fair for him to benefit from the fund.

To be honest, I don't know the end of the story. Sorry to say that. Here's what gets me: the landlord didn't just eat the property tax, but instead passed it onto the consumer. So, what's a corporate tax but a sales tax by another name?

I've seen one argument saying that it's also one thing that is designed to expand the gap between small business and big business. I'm looking for arguments on the other side of the aisle, really. The pro-corporate-tax argument. I'm sure there's an argument somewhere, and I am curious.


Kevin said...
This comment has been removed by the author.
Kevin said...

I'm not quite sure I understand what point you're making. Yes, all taxes increase the costs of doing business, some of which get passed on to consumers, and some of which are taken out of profits; the balance between those two will depend (usually) on the market forces that shape how much the seller can charge. Maybe you could clarify so we can get a big fiscal policy flamewar going? Me, I think we should oppressively tax six-string guitars to encourage more people to pick up the bass instead. (I'm still working on the loophole that will allow me to evade this and be one of the few guitarists left standing.)

(And dang, there should be a way to edit a post short of deleting and reposting.)

Dave Jacoby said...

I get why there isn't. That way, you can't say something horrible, get responded to, then change your original comment and have the respondent's comment be totally OOC. But yeah, it can be a drag.

At this point, I'm not looking to make a point. I'm looking to understand. There's kind of a point connected to someone I know, but I don't want to drag that in before I understand some more. The last thing I want is a flame war.

And there is a bass about four feet from me right now, so I'm doing my part.

Dave Jacoby said...

I have seen arguments for a national sales tax, replacing the IRS, which in today's iconography takes a place somewhere between the Sheriff of Nottingham and the Bogeyman. The main argument I've heard against the national sales tax is that it is a regressive tax, hitting the lower income levels at a higher rate than the higher levels.

If the corporate tax can be seen as a form of redirected sales tax, then we get all the problems of a regressive tax without an understanding of the problem. When the Sheriff of Nottingham raids the poor box and arrests Friar Tuck, we see the problem. When we get our pay stub and see a huge gap between gross and net, we see the problem. When we buy something for $9.99 and pay much more than $9.99, we see the problem. When the tax is hidden in the manufacturer's and the distributor's and the store's SEC filings and whatnot, we don't. Then we start believing the campaign ads.

Kevin said...

Well, it's tricky. You can make the sales tax sort-of progressive for some income ranges by giving a big fixed rebate (a la the "FairTax"). That makes the tax you're paying very visible, as you say (ensuring that taxes can never be raised, just as spending can never be, thus creating all sorts of really hidden costs as the deficit rises and the dollar weakens). Also, replacing the federal income tax code would eliminate a lot of the soul-crushing complexity of filing.

How fair it is depends very much on your definition of fair. Switching to a national sales tax would be very, very good for people with large incomes. Reasonable people can become unreasonable quickly debating what tax structures are fair. Me, when I hear talk of a "fair tax," I'm inclined to say, why should taxation be related to income or consumption? Let's just take the federal budget, divide equally, and charge each person their 1/nth. Works out to about $9500/person. What could be fairer than that?

Irony is generally lost on fair tax-ers.

Kevin said...

Um, make that "...just as spending can never be cut." Unless it's spending that goes to *other* people, of course. I am continually amused that the states that lean Republican are the ones that are sucking hardest from the giant federal teat.

Dave Jacoby said...

$9500 * 5 = eeep! That certainly does inspire an "I'll shut up now" response, doesn't it?

Kevin said...

To be fair, nobody (but me) is proposing the 1/n tax. I put it forward to show that there are different meanings for "fair." There are a lot of competing interests in setting up a tax code, and every change produces winners and losers. I hate the tax code as it stands, but major changes have a way of producing big unintended consequences. (For what it's worth, I think the plans of both of the major presidential contenders are pretty lousy despite being essentially small changes -- my favored candidate's somewhat less awful than the other. My sense is that neither plan stands a snowball's chance of getting through Congress anyway.)

Dave Jacoby said...

No plan survives first contact with the enemy or the Congress, to be sure.

I started thinking about tax policy when I started seeing TV ads where one guy accuses that guy of giving tax breaks to companies moving jobs overseas. As it turns out, someone I know works for a company moving a factory to a place over the ocean, and he flies out to the new plant with some regularity. Why does it make sense to go there? It isn't where the raw materials come from, so they have to boat the stuff in and boat the stuff out. The workers aren't so much better or so much cheaper, not nearly enough to make up for the increased transportation cost. So, what's the reason to do it elsewhere?

Taxes. So, if you cut taxes on those who would ship jobs overseas, maybe they'll do much much less of it.

What does it say when a candidate's own ads contain the best arguments against him?

Kevin said...

Disclaimers: I know nothing about anything, and especially nothing about your friend's employer. I never let that stop me shooting my mouth off.

At the risk of being a jackass, I'm skeptical of the big table on the Wikipedia page, and especially about the summary graph with the big red USA. Yes, the maximum marginal rate is high here, but then corporations hire tax attorneys to figure out how to turn $350M of receipts into $257.23 of profit. The tax code is designed to collect revenue, but also to provide incentives for individuals and (especially) businesses to behave in certain ways so that their effective tax rates are much lower than the marginal rates.

It'd be interesting to see what those graphs look like for a few case studies of taxes paid by comparable businesses in each country, assuming that they know how to play the game in each country. (To be fair, you'd probably also need to account for significant, nonuniform, non-tax costs of doing business in each country: employee health plans and liability insurance in the US, bribes in Flatlandistan, whatever.)

This would be an insane amount of work, and the Kevin Trust for Tax Policy is all tapped out this year, so we probably have to settle for what the market's telling us: production in the US is too expensive. Maybe it really is all about taxes, but there are enough complicating factors that I couldn't say. (Knowing which countries we're losing businesses to would provide some clues.)

In closing, the tax code is a hairy mess. And when I am president, no child will be denied a set of drums just because her parents can't afford them.

Dave Jacoby said...

I work for what essentially is a car company, and the logo on the side of my building for the UAW is just as big as the logo for the company itself. I get the idea about production being expensive. I have less personal experience with the level of corruption in other countries but get that on an intellectual level. They did say on one of the pages that they didn't really have comparable data.


My middle kid has a drumset we got for $50. Broken snare stand and hihat, so that's a problem, but I still see it as a great deal.