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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Murray N. Rothbard on Neutral Taxation - Dictionary of Arguments
Rothbard III 919 Neutral Taxation/Rothbard: [there is an] impact of a tax on an individual considered by himself. Equally important is the distortion of the market's pattern of factor prices and incomes, created by the way taxes bear down upon different people. The free market determines an intricate, almost infinite array and structure ofprices, rates, and incomes. The imposition of different taxes disrupts these patterns and cripples the market's work of allocating resources and output. Example: Thus, if firm A pays $ 5,000 a year for a certain type of labor, and firm B pays $3,000 laborers will tend to shift from B to A and thereby more effciently serve the wants of consumers. But if the income earned at firm A is taxed $2,000 per annum, while income at B is taxed negligibly or not at all, the market inducement to move from B to A will totally or virtually disappear, perpetuating a misallocation of productive resources and hampering the growth and even the existence of firm A. Tax neutrality/Rothbard: (…) the quest for a neutral tax - a tax neutral to the market, leaving the market roughly as it was before the tax was imposed - is a hopeless venture. For there can be no uniformity in paying taxes when some people in society are necessarily taxpayers, while others are privileged tax-consumers. >Government budget/Rothbard, >Government spending/Rothbard, >Bureaucracy/Rothbard. But even if we disregard these objections and fail to consider the redistributionist effects of government spending out of tax revenues, we cannot arrive at a system of neutral taxation.(1) Neutral taxation/Economic theories: 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. Rothbard III 922 Government services/head tax: (…) 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.(2) This is the neglected cost principle of taxation. >Cost Principle/Rothbard, >Neutral taxation/Economic theories, >Benefit principle/Rothbard. 1. This is true if we also disregard the grave conceptual difficulties of arriving at a definition of "income," in accounting for the imputed monetary value of work done within a household, of averaging fluctuating in- comes over various years, etc. 2. 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. |
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 Neutral Taxation
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