**Next message:**Lisa Dusseault: "RE: Does consumption tax include real estate sales? (Was: Consumption 2)"**Previous message:**Jeff Bone: "Re: Does consumption tax include real estate sales? (Was: Consumption 2)"**In reply to:**Russell Turpin: "So .. how does a transaction tax stack up?"**Next in thread:**Russell Turpin: "Re: Transaction tax equations... Re: So .. how does a transaction tax stack up?"**Reply:**Russell Turpin: "Re: Transaction tax equations... Re: So .. how does a transaction tax stack up?"**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]

Punchline up front: not equitable.

The analysis of a transaction tax is only somewhat more complex than

for a consumption tax, and that added complexity is really just for

completeness. We have to factor earnings (expenditures of earnings,

really) and our definition of equitable a bit further, into

consumption (C,) investment (I,) and savings (S). The difference

between the latter two is that presumably the latter is exempt from

the transaction tax.

E = C + I +S

C/E + I/E + S/E = 1

TRANSACTION TAX SYSTEM

W = E - C - T(I+C) (Eq. 1)

EQUITABLE-3

Definition 2: (D2) An EQUITABLE-3 tax system is one where,

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

absolute allocations of earnings between consumption,

savings, or investment but assuming that the individual

ratios of these components over earnings are equal:

for x, y such that Ex > Ey:

Cx/Ex = Cy/Ey & Ix/Ex = Iy/Ey & Sx/Ex = Iy/Ey ---> Wxy =

Pxy

THEOREM: A flat universal transaction tax is NOT EQUITABLE-3

Given:

W = E - C - T(I+C) (Eq. 1)

Wxy = Wx / Wy (Eq. 2)

Pxy = Ex / Ey (Eq. 3)

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

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

Cr = 5, Ir = 2.5, Sr = 2.5 (G3)

Cj = 1, Ij = .5, Sj = .5 (G4)

Cr / Er = Cj / Ej etc. (satisfying D2)

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

Analysis:

Wr = 10 - 5 - .5(2 + 5) = 1.5 (A1, from Eq. 1, G1, G3, G5)

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

Wrj = Wr / Wj = 1.5 / .5 = 3 (A3, from Eq 2, A1, A2)

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

3 != 5, Wrj != Prj (A3, A4)

D1 is FALSE

.: A flat universal transaction tax is NOT EQUITABLE-3.

DISCUSSION

A flat universal transaction tax is not equitable because it gives

preference to one kind of (non-productive, btw) economic activity

(savings) over others. A modification that would make this type of

tax equitable would be to levy a transaction tax on deposits.

jb

**Next message:**Lisa Dusseault: "RE: Does consumption tax include real estate sales? (Was: Consumption 2)"**Previous message:**Jeff Bone: "Re: Does consumption tax include real estate sales? (Was: Consumption 2)"**In reply to:**Russell Turpin: "So .. how does a transaction tax stack up?"**Next in thread:**Russell Turpin: "Re: Transaction tax equations... Re: So .. how does a transaction tax stack up?"**Reply:**Russell Turpin: "Re: Transaction tax equations... Re: So .. how does a transaction tax stack up?"**Messages sorted by:**[ date ] [ thread ] [ subject ] [ author ]

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