Category Archives: Economics (Taxation)

The Consumption Tax – A Non-Starter


The Consumption Tax – A Non-Starter

By Duncan Whitmore

In a recent essay published on this blog1, the present author proposed a short series of aims that would reduce the burden of taxation on economic prosperity, in comparison to a programme proposed by the Adam Smith Institute (ASI).2 Part of the ASI’s programme consists of “replacing [the] income tax with a progressive consumption tax, so savings are not taxed”.3 In relation to this, we explained, briefly, that all taxes are paid for out of one of two sources of production – either income or wealth – and that

The individual names of all of the different taxes refer not to fundamentally different types of tax; rather, they denote either the specific kind of good to be burdened (i.e. property, alcoholic beverages, etc.) or the particular event that triggers the tax liability. For example, within the category of taxes on income, an income/payroll tax taxes the income at the point it is earned; a VAT or sales tax, on the other hand, taxes the income at the point it is spent.

Consequently, we concluded that a proposal for a consumption tax amounted to little more than simply moving a tax burden around and calling it a different name rather than eliminating its depressing effects upon economic prosperity:

Changing the precise moment when a tax is levied ultimately does nothing to ameliorate the effects of the tax – it simply means that you might be able to hang on to your money for a little bit longer before having to give it up. Neither also does changing the triggering event have any effect upon who, ultimately, pays for the tax. All taxes must be paid for out of production and so the burden of any tax always falls upon producers.

This essay will elaborate on why, for a programme that wishes to give a serious boost to economic prosperity by reforming taxes, the proposal to switch to a consumption tax from an income tax is a relatively pointless endeavour which should not be considered as a priority. We will also explain why the claim that “savings are not taxed” is utterly fallacious before exploring some particular difficulties that are inherent to introducing and operating a consumption tax. Although this essay concerns, mainly, the effects of a consumption tax upon economic prosperity, we will then move on to highlighting some further problems this method of taxation presents from a purely libertarian perspective. Finally, we will conclude by pointing out that any benefits a consumption tax could bring are unlikely to be realised in the absence of fostering a general government commitment to lower tax rates. Read more

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Trade Deficits In The Context Of State-Managed Trade And Systemic Debt


By ilana mercer

In the turbulent times of Trump, it seems like an eternity, but last week, Gary Cohn, the president’s chief economic advisor, resigned from his position. President Trump had asked “Cohn directly” if he could be relied on to help implement tariffs. Cohn said no, by Bloomberg Politics’ telling. Hours later, he was out.

Asked and answered—also in the presence of Mr. Cohn, back in November of 2017—was another important question. At the Wall Street Journal CEO Council, august CEOs, a room full of them, were asked if they’d increase capital investment in American workers, pursuant to Trump’s business-friendly tax plan. A pitiful few raised their hands.

Globalist Gary, as he was known by the near-extinct Bannon faction of the West Wing, remained unperturbed. Formerly chief operating officer of Goldman Sachs, the affable Democrat had formed part of the Kushner-Cohn opposing axis, in this fractious White House.

Cohn had helped pass the Trump tax plan, which—judging by the election outcome in Pennsylvania’s Trump friendly, 18th congressional district—might not have been a legislative chart-topper.

For Mr. Cohn, it’s always been big business above all. But Trump’s promise to pass tariffs, the kind Mitt Romney proposed in 2012, and George Bush passed in 2002—Cohn would not tolerate because, as big media keeps mouthing, “he’s a free-trade guy.”

Though it’s true that Cohn’s successor, TV economist Larry Kudlow, similarly bills himself “a free-trade guy”; untrue is the idea that the US, or any country, for that matter, practices the ideal of free trade.

Free trade is an unknown ideal.

What goes for “free trade,” rather, is trade managed by bureaucratic juggernauts—national and international—central planners concerned with regulating, not freeing, trade; whose goal it is to harmonize labor, health, and environmental laws throughout the developed world. The undeveloped and developing worlds generally exploit and pollute as they please.

One of the promises Candidate Trump had made and hasn’t yet violated was to simply make these statist organs and trade agreements work for the American people. To wit, the president believes in reducing trade deficits.

Far be it from me to endorse tariffs as a means of reducing trade deficits. I am only here questioning the totemic attachment free-traders have to trade deficits, given that Americans live under conditions of systemic debt and state-managed trade that is anything but free.

If free trade is an unknown ideal, it is quite appropriate to question the alleged glories of an aggregate, negative balance of trade, in this “rigged system,” as Trump would say.

As to systemic debt: Yes, libertarians ought to oppose tax increases, which is what tariffs are. We hold that voluntary exchanges are by definition advantageous to their participants. Trader Joe’s, my hair stylist and the GTI dealer—all have products or skills I want. Within this voluntary, mutually beneficial relationship, I give up an item I value less, for something I value more: a fee for the desired product or service. My trading partners, whose valuations are in complementary opposition to mine, reciprocate in kind.

Ceteris paribus (all other things being equal), there’s nothing wrong with my running a trade deficit with Trader Joe’s, my hair stylist or my GTI dealer, as I do—just as long as I pay for my purchases.

And there’s the rub: The data demonstrate that we Americans, in general, are not paying for our purchases.

Americans, reports Fortune.com, actually have more debt relative to income earned than Greeks. “Indebted U.S. households carry an average credit card balance of $15,706, according to NerdWallet.”

Corporate America is likewise heavily leveraged.

The Federal government is the definition of debt. The U.S. national debt is over $20 trillion without federal unfunded liabilities. Those exceed $210 trillion, by Forbes’ 2017 estimate. Total public debt as a percent of Gross Domestic Product, announced the Federal Reserve Bank of St. Louis, is 104 percent.

Our improvident government’s debts, liabilities and unfunded promises exceed the collective net worth of its wastrel citizens.

Given these historic trends, it seems silly to dismiss the yawning gap between U.S. exports and U.S. imports as an insignificant economic indicator.

Because of decades of credit-fueled, consumption-based living, the defining, current characteristic of our economy is debt—micro and macro; public and private. Unless one is coming from the pro-debt Keynesian perspective, is this not an economically combustive combination?

Non-stop consumption—enabled by government monetary and regulatory policies—has coincided with a transition from a manufacturing-based economy to a service-based one; and from an export- to an import-oriented economy. For some reason, this reality continues to excite the febrile imaginations of Beltway libertarians.

Libertarians at CATO, for instance, love that, historically, America’s annual trade deficit has been rising: “[t]rade deficits do not cost jobs. Rising trade deficits,” they say, “correlate with falling unemployment rates. Far from being a drag on economic growth, the U.S. economy has actually grown faster in years in which the trade deficit has been rising than in years in which the deficit has shrunk.”

Much to CATO’s delight (presumably), the U.S. Bureau of Economic Analysis announced, in 2017, that “the goods and services deficit was $53.1 billion in December, up $2.7 billion from $50.4 billion in November, revised. … Year-over-year, the average goods and services deficit increased $6.1 billion from the three months ending in December 2016.”

In arguing their point, trade-deficit deniers point out, correctly, that America ran trade surpluses during the Great Depression. But from the fact that the US had trade surpluses during some very bad times—it does not follow that the nation’s current trade deficit is inconsequential as economic indices go. It could just as well mean that the economic fundamentals today are worse than they were during the Great Depression; since this country has never before been as deeply and systemically in hock as it currently is.

Far from comprising discrete parts, the economy is ineluctably interconnected. The trade deficit belongs to a nation enmeshed in debt.

Contra the Keynesians who control the economy—and whose thinking many free-traders appear to be propping up intellectually, in their indifference to credit-fueled consumption—real wealth is created not by printing paper money and galvanizing the globe’s governments to buy our government’s bonds, but by the production and consumption of products.

Considering that an abundance of goods, not money income, is what makes for an increase in wealth; it’s not unreasonable to want to see a natural shift take place in the U.S., from an economy founded on consumption and credit to one rooted in savings, investment and production.

 

Ilana Mercer has been writing a weekly, paleolibertarian column since 1999. She is the author of “Into the Cannibal’s Pot: Lessons for America From Post-Apartheid South Africa (2011) & “The Trump Revolution: The Donald’s Creative Destruction Deconstructed” (June, 2016). She’s on Twitter, Facebook, Gab & YouTube

Godfrey Bloom vs. Socialist ‘Worker’


This morning, on the JVS Show, on BBC Three Counties Radio, Godfrey Bloom tangled with Tomáš Tengely-Evans, a socialist ‘worker’, while discussing the recent welfare story concerning Claire Young. This lady recently spent £2,000 pounds on Christmas presents for her children whilst living entirely on state welfare benefits.

If you’d like to listen to this debate, please click on the audio link below.

Mr Bloom actually stops speaking at 12:15, but if you would like to hear Mr Tengely-Evans being handsomely shredded by Jonathan Vernon-Smith, please keep listening:

Godfrey Bloom: Remove the Deficit Now!


With reports in the press that the current UK Chancellor, Philip Hammond, is planning to keep increasing the UK state’s black hole of debt for another eight years, ten years beyond the initial plan, Godfrey Bloom recently spoke on this subject to Duncan Barkes, on BBC Radio London.

In the interview, Mr Bloom outlined a straightforward plan to wipe away the UK state’s deficit spending immediately, given sufficient political backbone from the Chancellor.

If you would like to listen to the interview, please click on the audio link below:

Labour and the land


By D. J. Webb.

Note: the Libertarian Alliance does not endorse candidates or parties in the general election. This article is offered for discussion and should not be construed to constitute advice as to how to vote.

A brief note.

While immigration and multi-culturalism are my main issues at election time, the London attacks have just underlined that Theresa May has no intention of devising a proper response to terror. She wants more refugees to come in, refuses to deport the 23,000 known jihadis, and favours continued mass immigration. Read more

Burn-The-Wealth Bernie & His Partial Enslavement System


By ilana mercer

“The top one-tenth of 1 percent in this country own almost 90 percent … as much wealth as the bottom 90 percent,” roared the independent senator from Vermont, Bernie Sanders, at the first Democratic primary debate of 2015, in Las Vegas.

Standing for president, Sanders implies, somehow, that there exists in nature a delimited income pie from which a disproportionate amount of wealth is handed over to, or seized, by a class of evil doers: “the rich.” Read more

Savoring Hillary’s Vow Of Silence


By Ilana Mercer

The national media are sulking. Hillary Clinton won’t speak to them. But what is it about this power-hungry dirigista that the media don’t already know?

Prior to taking a vow of silence, Mrs. Clinton promised to make President Obama’s legislation by executive action with respect to immigration seem like child’s play; a “DREAMers” delight, if you will.

Where’s the mystery there?

Big Media know full-well about—and have just about forgiven—Madam Secretary’s habit of conducting state affairs via private server, later scrubbed clean of unflattering or incriminating communications. Read more

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