**Next message:**Stephen D. Williams: "Re: Rohit's Gadget Orgasm, or, Tivo Has Changed My Life"**Previous message:**Josh Cohen: "RE: Nightmare on Elm Street with Win2k Professional"**In reply to:**Lisa Dusseault: "RE: Jeff's Retraction, with Equations! was Re: Taxes: Taxonomy and Evaluation"**Next in thread:**Jeff Bone: "Regressive vs. Progressive and a few thoughts..."**Reply:**Jeff Bone: "Regressive vs. Progressive and a few thoughts..."**Maybe reply:**Grlygrl201@aol.com: "Re: Consumption 2: The Return (With New and Improved Definitions and Proofs!)"**Reply:**Russell Turpin: "Re: Consumption 2: The Return (With New and Improved Definitions and Proofs!)"**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]

(closeup Jeff)

(Jeff walks up to podium, knocks on mike...)

Jeff: Hello? Is this thing on?

Adam: (off camera) Hot mike, hot mike!

(closeup Adam)

(Adam twiddles knob on mix board)

Adam: (mutters) Jeff you goon...

(wide angle Jeff)

Jeff: Uh, good evening? Thanks for coming.

(pan audience. most are asleep. Lisa, Kent, a few others half-awake...)

(closeup Geege)

Geege rolls eyes.

(closeup Dave)

Dave arches eyebrow, yawns, glances at program.

(closeup Jeff)

Jeff: Our purpose this evening is to demonstrate that, in fact, straight

consumption taxes are not "regressive" in a logical and common-sensical

fashion...

INTRODUCTION

When we last tuned in, things were looking pretty grim for one of our heroes,

the straight consumption tax. It appeared definitionally doomed to being

considered "NOT EQUITABLE," and hence "regressive" and unacceptable. And while

the FairTax only made a cameo in the last episode, its future was questionable,

too...

But don't touch that dial! Have we got a shocker for you, just as surprising as

tonight's Survivor! Go make yourself some popcorn, sit back, relax, and read

on. But first, a few words from and to (our sponsor? ;-) Lisa...

EVIL TAXES?

Lisa Dusseault wrote:

*> I think the assumption of FairTax and perhaps others is that people who make
*

*> more money spend more money. Can you make the system fail to be equitable
*

*> for Cr>Cj?
*

A Damn Fine Question, right at the center of the controversy... the answer is

yes, in some cases, for the proof given. This question is critically important

to a better analysis, see below.

First, clarifications...

*> The most intriguing parts of the ongoing tax discussion, to me, has been the
*

*> opposition to taxes which allow the rich to get richer, or to increase the
*

*> wealth gap.
*

This was hanging me up, too, Lisa, but I think you have it wrong --- as did I.

The opposition (mine, anyway) is not to taxes which allow the rich to get

richer, or which allow the wealth gap to increase. The opposition is to taxes

which artificially, simply by the construction of the system, allow the rich to

get richer at a faster rate than they would otherwise just by virtue of their

higher relative economic productivity. This is a "regressive" tax, one which

--- I'll admit --- unfairly advantages the higher earner. Hence, by the

definitions earlier, a fair or "EQUITABLE" tax system is one in which the

relative wealth accumulation of a high earner vs. a low earner is exactly equal

to the relative difference in economic productivity of the high earner vs. the

low earner. Slightly modifying my notation, for any given tax system the

following relation should hold:

Wxy = Pxy

Just to be clear:

*> If you define as "evil" any tax system which allows the rich to get richer,
*

I don't. I would define as "evil" --- or at least unfair --- any tax system

which by its particular construction allows anyone (rich or poor) to get richer

(accumulate wealth) faster than they otherwise would through the normal exercise

of capitalism. That's the heart of the fairness argument I've been fumbling

with since we began, kudos to Dave for helping me out there. It's what I was

trying to say in Bone's Lemma, which we've now made very precise I hope. This

is what the above equation captures.

Onward...

EQUITABLE REVISITED

We need to dig a bit deeper into the definition of EQUITABLE. Previously, we

said:

An EQUITABLE tax system is one where, given two parties x, y such that

Ex > Ey,

all other things being equal, the relative wealth accumulation of the

two

parties is equivalent to the relative productivity of the two parties.

The

following relation must hold: Wx / Wy = Pxy.

The problem here is this "all other things being equal" hocus. We took that to

mean that Cx = Cy was a given as well as Tx = Ty was a given. We also have a

pretty monolithic notion of earnings, E, and how they relate to wealth

accumulation. Let's dig in.

We can decompose earnings into two parts: consumption, C, and another quantity

we'll call "investment" or I. Consumption is defined as expenditure of earnings

on goods, services, and assets that will got generate returns, but rather will

either be consumed or depreciate over time. Investment is its complement:

investment is the expenditure or translation of earnings into assets and other

instruments which are expected to generate economic returns. So

E = C + I

C/E + I/E = 1

An equitable system should not give preferential treatment with respect to the

accumulation of wealth to any particular economic activity; consumption and

investment should be treated by the system as equally acceptable economic

activities. Ironically, this argues for a straight, flat consumption tax. Back

to Bone's Lemma:

Any fair and equitable tax system should not inhibit someone from

bettering their economic situation through increasing their economic

productivity, i.e. income. The amount of increased individual economic

productivity a person is able to achieve should directly and

proportionally translate into corresponding betterment of their

economic situation, regardless of the magnitudes involved.

Perhaps imperfectly stated, but you hopefully get the gist --- it's Wxy = Pxy.

Furthermore, this should hold true regardless of the absolute amounts allocated

to C (or I) by x and y, as long as they are equally proportional to Ex, Ey

respectively. My previous error was in dealing with absolute amounts rather

than ratios. If neither consumption nor investment is preferred by the system,

then the higher earner should be able to consume the same proportion of their

earnings as the lower earner without breaking Wxy = Pxy. So, we need a new

definition of EQUITABLE which makes Bone's Lemma true and reflects this new ---

and, I believe, quite fair --- thinking.

EQUITABLE-2

Definition 1: (D1) An EQUITABLE-2 tax system is one where, given two

parties x, y such that Ex > Ey, independent of the absolute

allocations of earnings between consumption or investment but assuming

that the individual ratios of these components over earnings are

equal:

assuming Cx/Ex = Cy/Ey and Ix/Ex = Iy/Ey,

then Wxy = Pxy must be true

THEOREM: A straight consumption tax is EQUITABLE-2

Here's the proof...

Given:

W = E - C - TC (Eq. 1)

Wxy = Wx / Wy (Eq. 2)

Prj = Er / Ej (Eq. 3)

Er = 10 (Ritchie earns $10) (G1)

Ej = 2 (Joe earns $2) (G2)

Cr = 5 (G3)

Cj = 1 (Cr/Er must be given to be equal Cj/Ej, D1) (G4)

Cr / Er = Cj / Ej (satisfying D1)

T = .5 (50%, or whatever...) (G5)

Analysis:

Wr = 10 - 5 - .5(5) = 2.5 (A1, from Eq. 1, G1, G3, G5)

Wj = 2 - 1 - .5 = .5 (A2, from Eq. 1, G2, G4, G5)

Wrj = Wr / Wj = 2.5 / .5 = 5 (A3, from Eq 2, A1, A2)

Prj = 10 / 2 = 5 (A4, from Eq. 3, G1, G2)

5 = 5, Wrj = Prj (A3, A4)

.: A straight consumption tax is EQUITABLE-2.

DISCUSSION

If you agree that the purpose of a tax system is not to "route around"

capitalism in any way, i.e. not to influence accumulation of wealth one way or

another, AND you believe that higher earners should not be hindered in enjoying

the "fruits of their labors" or penalized for being a higher earner, THEN you

should be convinced by the above reasoning and believe the following

conclusion. A straight consumption tax is an equitable (i.e., EQUITABLE-2)

system which does not artificially influence wealth accumulation in any way. A

straight consumption tax is not regressive under reasonable assumptions.

A NOTE ON FAIRTAX

Ironically, turns out the FairTax --- isn't. The FairTax too dramatically

favors investment; while dressing itself up in a very "progressive" way, if you

work similar equations for FairTax you find artificial acceleration of wealth,

if i.e. Cx/Ex < Cy/Ey then Wxy > Pxy. The amount of acceleration that occurs is

also tied to the absolute magnitude of the numbers involved, rather than the

proportions. If anybody wants to see the math, drop me a line, I'll send it to

you OOB.

CONCLUSIONS

Once more, with gusto:

A straight consumption tax is an equitable (i.e., EQUITABLE-2) system

which does not artificially influence wealth accumulation in any way.

A straight consumption tax is not regressive under reasonable

assumptions.

So, I retract my previous retraction, while simultaneously provisionally

"suspending" my support for FairTax pending further analysis. The straight

consumption tax, which turns out not to be "regressive" at all, takes the lead.

Other than that, I'm not sure yet... But I promise to report back!

;-)

jb

**Next message:**Stephen D. Williams: "Re: Rohit's Gadget Orgasm, or, Tivo Has Changed My Life"**Previous message:**Josh Cohen: "RE: Nightmare on Elm Street with Win2k Professional"**In reply to:**Lisa Dusseault: "RE: Jeff's Retraction, with Equations! was Re: Taxes: Taxonomy and Evaluation"**Next in thread:**Jeff Bone: "Regressive vs. Progressive and a few thoughts..."**Reply:**Jeff Bone: "Regressive vs. Progressive and a few thoughts..."**Maybe reply:**Grlygrl201@aol.com: "Re: Consumption 2: The Return (With New and Improved Definitions and Proofs!)"**Reply:**Russell Turpin: "Re: Consumption 2: The Return (With New and Improved Definitions and Proofs!)"**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]

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