Tuesday, August 28, 2012

Churn (Partie Deux)

So, Nohype sent this little nugget the other day in another post.

I'm not sure you're going far enough down your decision tree. GDP is a macro measurement of churn -- that is, how fast we can turn over our capital base. This measurement system rewards those who can figure out how to create the shortest possible product lifecycles with the lowest input costs (i.e.: maximum externalization of costs).  
If we measured actual standing wealth, the entire paradigm might shift. Durable goods might actually become durable. As such, the economy would be based on servicing and maintaining existing capital, rather than churning it as fast as possible in to landfills.
So that got me really thinking about how the way we tax, spend and value in this country has become completely ass-backward in the past thirty years.

The core of the problem is the idea of the income tax itself.  By it's very nature, this kind of tax is regressive.  The Romney's and the Bushes sure as hell don't pay a significant amount of their wealth to the state.  Nope, it is the same as the gabelle of the ancien regime.  A simple way for tax collector to make sure that the little folks are thoroughly sheared while the big folk guard their wealth.

We look at the churn of the GDP and the income taxes.  These are measures of "churn" as Russell so eloquently phrases it.  It is not a measure of productivity of capital, it is a measure of money moving through the system.  This country has significantly less productive capacity than it did in my youth, yet our moving our factories overseas, outsourcing our work, and going in debt up to our eyeballs has led us to have a higher GDP than when I was in my salad days

I think that a much more fair way to deal with the tax issue is to tax wealth.  There are folks out there who pay a no taxes or minimal percentage of their net worth every year because they have huge amounts of investments, savings, and land.  But you mention taxing wealth and making the wealthy shoulder their share of the load and then you have a huge roar of outrage.

You see, taxing income is just a way of saying that we are going to stick it to the little folks.


russell1200 said...

You don't really win by taxing wealth either. We already have a hard time saving money as it is, wealth taxes tend to be taxes on savers.

Part of the reason for the churn is because only a very small amount of our current resources are needed to keep up the basic necessities. Obviously if input prices change (oil and fuel mostly) that would also change.

Taxing the churn, may slow up the churn some, but taxing the wealth has to be done very carefully. Since assets usually only have value through the rents they can collect, it tends to promote even more rent seeking behaviour. At some point, you have to find an income stream to match the tax, or the wealth will disappear.

NoHype said...

"You see, taxing income is just a way of saying that we are going to stick it to the little folks."

True, but only part of the story. Payroll taxes are the other part. In spite of being highly regressive, the very wealthy still collect on their "fair share" of the proceeds upon retirement.

Russell's contention is also only half of the story. Only people who aren't uber-wealthy enough to put their assets in family trusts, or into shell corporations (which are then held offshore) are taxed on their wealth. The exception, in some cases, is the property taxes on land.

Granted, the wealthy get away with tax murder and they shouldn't. But the only reason we all let them get away with it is because most of us are still convinced we'll eventually be let into that exclusive club too.