Economics Dictionary of ArgumentsHome
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| Neutral taxation: Neutral taxation in economics refers to a tax system that does not distort economic decisions or behavior. It aims to minimize its impact on market outcomes, such as investment, production, and consumption, ensuring that taxes do not favor one economic activity over another. The goal is to maintain fairness and efficiency in resource allocation. See also Taxation, Efficiency._____________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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Economic Theories on Neutral Taxation - Dictionary of Arguments
Rothbard III 920 Neutral taxation/Economic theories/Rothbard: Many writers have maintained that uniformly proportional income taxes for all would yield a neutral tax; for then, the relative ratios of incomes in society would remain the same as before. Example: Thus, if A received $6,000 a year, B earned $3,000 and C $2,000, a 10-percent tax on each man would yield a "distribution" of: A, $ 5,400; B, $2,700; C, $ 1,800 - the same mutual ratios as before. Incentives/Rothbard: This assumes, of course, no disincentive effects of the tax on the various individuals or, rather, equiproportional disincentive effects on each individual in the society - a most unlikely occurrence. Problems/Rothbard: But the trouble is that this "solution" misconceives the nature of what a neutral tax would have to be. For a tax truly neutral to the free market would not be one that left income patterns the same as before; it would be a tax which would affect the income pattern, and all other aspects of the economy, in the same way as if the tax were really a free-market price. >Free market/Rothbard, >Neutral taxation/Rothbard, >Income tax/Rothbard, >Taxation/Rothbard, >Income Distribution/Rothbard. Rothbard III 921 Prices: (…) we must surely realize that when a service is sold at a certain price on the free market, this sale emphatically does not leave income "distribution" the same as before. For, normally, market prices are not proportional to each man's income or wealth, but are uniform in the sense of equal to everyone, regardless of his income or wealth or even his eagerness for the product. A Ioaf of bread does not cost a multimillionaire a thousand times as much as it costs the average man. Market/production/economy: If, indeed, the market really behaved in this way, there would soon be no market, for there would be no advantage whatever in earning money. The more money one earned, the more, pari passu, the price of every good would be raised to him. Therefore, the entire civilized money economy and the system of production and division of labor based upon it would break down. Taxation neutrality: Far from being "neutral" to the free market, then, a proportional income tax follows a principle which, if consistently applied, would eradicate the market economy and the entire monetary economy itself. Poll tax/head tax: It is clear, then, that equal taxation of everyone - the so-called "head tax" or "poll tax" - would be a far closer approach to the goal of neutrality. But even here, there are serious flaws in its neutrality, entirely apart from the ineluctable taxpayer-tax-consumer dichotomy. For one thing, goods and services on the free market are purchased only by those freely willing to obtain them at the market price. Since a tax is a compulsory levy rather than a free purchase, it can never be assumed that each and every member of society would, in a free market, pay this equal sum to the government. Rothbard III 922 Government services/head tax/VsNeutral taxation: (…) let us assume that the head tax is being paid [for police protection]. The free-market rule is that equal prices are paid for equal services; but what, here, is an "equal service"? Surely, the service of police protection is of far greater magnitude in an urban crime center than it is in some sleepy backwater, where crime is rare. Police protection will certainly cost more in the crime-ridden area; hence, if it were supplied on the market, the price paid there would be higher than in the backwater. Furthermore, a person under particular threat of crime, and who might require greater surveillance, would have to pay a higher police fee. A uniform tax would be below market price in the dangerous areas and above it in the peaceful areas. To approach neutrality, then, a tax would have to vary in accordance with the costs of services and not be uniform.(1) This is the neglected cost principle of taxation. >Cost Principle/Rothbard, >Benefit principle/Rothbard. 1. We are not here conceding that "costs" determine "prices." The general array of final prices determines the general array of cost prices, but then the viability of firms is determined by whether the price that people will pay for their particular products will be enough to cover the costs, which are determined throughout the market._____________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. |
Economic Theories 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 in relation to Neutral Taxation
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