Economics Dictionary of ArgumentsHome
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| Income tax: Income tax is a levy imposed on individuals or entities by a government on their income. It is a major source of revenue for governments and is used to fund public services and infrastructure. Income tax rates vary depending on the jurisdiction and may be progressive, proportional, or flat. See also Income, Taxation._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Income Tax - Dictionary of Arguments
Rothbard III 913 Income tax/Rothbard: In the market economy, net incomes are derived from wages, interest, ground rents, and profit; and in so far as taxes strike at the earnings from these sources, attempts to earn these incomes will diminish. Incentives: The laborer, faced with a tax on his wages, has less incentive to work hard; the capitalist, confronting a tax on his interest or profit return, has more incentive to consume rather than to save and invest. The landIord, a tax being imposed on his rents, will have less of a spur to allocate land sites effciently. Marginal utility: It has been objected that since a man's marginal utility of money assets increases as he holds less of a stock of money, Iower money income will mean an increased marginal utility of income. Rothbard III 914 Substitution effect: As a result, a tax on money incomes creates both a "substitution effect" against work and in favor of leisure (or against saving in favor of consumption) and an "income effect" working in the opposite direction. Rothbard: This is true, and in rare empirical cases, the latter effect will predominate. (…) this means that when extra penalties are placed upon man's efforts he will generally slacken them; but in some cases, he will work harder to try to offset the burdens. In the latter cases, however, we must remember that he will lose the valuable consumption good of "leisure"; he will have less leisure now than he would have if his choices were still free. Working harder under penalty is only a cause for rejoicing if we regard the matter exclusively from the point of view of those living of fthe producers, who will thereby benefit from the tax. The standard of living of the workers, which must include leisure, has fallen. Investments: The income tax, by taxing income from investments, cripples saving and investment, since it Iowers the return from investing below what free-market time preferences would dictate. Rothbard III 926 Marginal utility: (…) the marginal savings and investments at the higher return will now be valued below consumption and will no longer be made. Time preference: There is another, unheralded reason why an income tax will particularly penalize saving and investment as against consumption. It might be thought that since the income tax confiscates a certain portion of a man's income and leaves him free to allocate the rest between consumption and investment, and since time preference schedules remain given, the proportion of consumption to saving will remain unchanged. But this ignores the fact that the taxpayer's real income and the real value of his monetary assets have been Iowered by paying the tax. (…) given a man's time-preference schedule, the Iower the level of his real monetary assets, the higher his time-preference rate will be, and therefore the higher the proportion of his consumption to investment. >Time preference/Rothbard, >Consumption/Rothbard. He shifts to a higher proportion of consumption and a Iower proportion of saving and investment.(1) >Income tax/Economic theories, >Neutral taxation/Rothbard, >Neutral taxation/Economic theories, >Cost principle/Rothbard, >Benefit principle/Rothbard. 1. For this shift to occur, the individual's real monetary assets must decline, not just the nominal amount in terms of money. If, then, instead of this tax, there is deflation in the society, and the value of the monetary unit increases roughly proportionately everywhere, then the nominal fall in each individual's money stock will not be a real fall, and hence effective time-preference ratios will remain unchanged. In the case of income taxation, deflation will not occur, since the government will spend the revenue rather than contract the money supply. (Even in the rare case where all the tax money is liquidated by the government, the individuals taxed will lose more than others and hence will lose some real monetary assets.)_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Income Tax
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