Re: Asset Depreciation question

I'll be getting to your NST shortly. I've been silent on the topic
because, when I can find some spare time, I've actually been doing a
little reading on basic economic theory, distribution of tax burdens,
shifting of costs among market participants as a market attempts to reach
long-term equilibrium, and the such, as well as doing a little modelling
using some basic assumptions and simple numbers.

The one thing I will state now is that, when stated without qualification,
the statement that "income taxes are embedded in prices" is misleading and
substantially wrong. The primary effect of both an income tax and an RST
is to reduce the net returns to both labor and capital (but primarily to
labor, owing to the fact that labor is generally less able to shift costs
onto its counterparties) - under either scenario, once the market
re-establishes long-term equilibrium, the retail price the consumer sees
is the same; however, each consumer is earning less than s/he would have
in the absence of either tax.

In short, if you really wanted to be truthful, you would have to say that
an RST is "embedded" in wages rather than saying that an income tax is
"embedded" in prices.

An income tax affects producer prices (i.e., the price that every
participant in the production chain pays, other than the ultimate
consumer), but its primary effect is to cause producer prices to either
increase or decrease in accordance with the relative ability of each
counterparty to a transaction to shift its costs onto the other. E.g.,
prices for capital inputs generally increase whereas prices for labor
inputs generally decrease. The ultimate effect is to reduce the amount of
money each participant has to consume. The exact same thing happens with
an RST imposed at the retail level, although it causes greater distortions
in prices than an income tax does as the market seeks to re-establish
equilibrium - i.e., even starting from a no-taxes point, an RST is worse
than an income tax from the perspective of tax-motivated distortions to
the economy.

Finally, the upheavals caused by a transition from an income tax, where
every market participant bears some of the burden of making actual payment
to Uncle Sugar, to an RST, where only the retailer has the burden of
making actual payment, are enormous. In any realistic economic model,
given the time-lag inherent in the market process of re-establishing
long-term equiliibrium (which is the only point at which the economic
effects of an RST and an income tax would be substantially similar), such
a transition kills the economy - in other words, the Chinese couldn't wish
for better allies in the economic battle with the U.S. than those willing
to implement an RST. Hell, even the French would be more competitive than
the U.S. for at least a few years after such a transition; unless, that
is, you really, honestly believe that Congress has both the patience and
the wisdom to implement, and then not screw around with, a twenty-year
transition period. Personally, I don't think so.

The RST, or the NST or the Fair Tax, or whatever variant you wish to
propose as a replacement for the current income tax, is a sure death-wish
for the U.S. economy. And that's only from the reasonably anticipatable
effects of a transition thereto; the additional opportunities that an RST
would provide for tax evasion would be more fuel on the fire.

If you don't think an RST creates more opportunities for evasion, then do
some reading on the EU's problems with evasion in its VAT system (keeping
in mind that (a) the VAT is only at about 15-20%, (b) the VAT applies to
all levels of production, not just retail, ensuring a greater amount of
useable cross-reporting (something an RST lacks), and (c) is levied in
conjunction with, not instead of, an income tax) - the UK recently had to
restate its National Accounts (similar to GDP) to take into account the
effect of fraudulent VAT claims on its import/export (balance of trade)
numbers. The basic schemes go by such names as carousel trading or the
disappearing trader.

Similar schemes crop up occasionally in the U.S., usually with respect to
cigarrettes or fuel excise taxes, and are sometimes called daisy-chain
scams. The fact that they don't come up very often here is because (a)
the tax rate is low and is imposed on only a few items, and (b) is subject
to cross-checking with income tax returns and the associated information
reporting. If an RST were to replace the income tax, such scams would
sky-rocket.

That's enough for now. Perhaps you should do a little more reading
yourself (other than the propaganda put out by the Fair Tax ignorami)?

.

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