skum, there is a difference between income tax and investment tax

when I am talking about progressive tax, I am mainly talking about income tax.

but the main point for me is that whatever the government spend, they have to tax. the main question is where they will tax it. most countries tax the poor what the poor can handle, and then tax the rich for the rest. in various forms.

"A tax on all income discourages investment. A tax on consumption only allows anyone, rich or poor, to become richer by folding over their profits into their companies instead of spending more on consumption."

The first part of this statement has been completely and utterly destroyed both by history and statistical evidence, so I'm not even going to address it.

The second part of your statement makes absolutely no sense. You claim that a tax on consumption allows poor people to become richer by folding over their profits into their companies? Ignoring my Marxist tendencies to denounce any profit as theft, I have to say that this entire idea is ludicrous. What businesses to poor people own? None? Maybe a failing gas station or corner store?

This is exactly what I was talking about earlier when I said that moderates could look at a consumption-based tax and say that "everyone pays their fair share" when in actuality a consumption-based tax merely aids in the funneling of capital from the poor to the rich, which is already happening at an alarming rate throughout the world.

Yes, if poor people owned businesses then this would (ignoring other fundamental failures of capitalism) be a fantastic way of generating government revenue. However, this ignores the reality of our situation, in that poor people do not earn businesses and must consume to survive. If we are really going to change the world for the better we must be pragmatic and look at reality.

In a profit oriented system the total retail cost of all goods must be greater than or equal to the total earnings in a given period. Why is this? Well just think about it:

If I buy $2 of raw materials from X, $3 of raw materials from Y and 5$ of labor from Z to produce product P then I need to sell all of my product P for $10 or more just to recoup my money. Are you following so far? Now, in this system the available earnings to buy product P are held by X, Y, and Z, and together they have $10 to spend on product P. As you can see herein lies the problem. Since all the earnings available to buy products are inherently less than the cost of the products. This means in a profit-oriented system it is impossible to sell all goods and services, based on earnings alone.

Let me reiterate, if there is only $10 available to buy product P, and all of product P must cost more than $10 then there is an inherent over production of product P.


Now I'm sure you're wondering how we've dealt with this natural failure of capitalism. I'll tell you, the truth is capitalism hasn't been around that long, you like to think it has but it hasn't. For a while we would just offload our overproduction onto other non-industrial nations in return for raw materials at way below cost. This increased the surplus of total earnings and the result was our powerful, ever growing, economy. However we never dealt with the inherent problem, which is natural overproduction. Now that these non-industrial countries are become industrial we are running out of places to offload inherent over production and the result has been our twilight recession where the world is producing more but losing jobs. There isn't enough earnings available to buy products and as a result there is even more overproduction and more workers need to be laid off.

Again, agreed with Boner Oiler. Industrialization in one country requires the de-industrialization of another. For example, the industrialization of Britain required the "de-industrialization" (in quotes because this is not really the right term for this specific case) of India and other territories in its Empire. Likewise, the industrialization of China required the de-industrialization of the United States.

Boner,

What do I pay myself? Suppose I was working alongside Z for $5 before I went into business for myself. I would not go into business for myself unless my management and organizations skill could add at least $5 value added to the product. Suppose my product sells for $16. After I pay $10 for X, Y, and Z, and pay myself $5 for the day job that I gave up, I have $1 economic profit (or $6 accounting profit). No imbalance occurs on account of my going into business for myself. The $1 economic profit will be a signal for others of equal entreprenurial skills to leave their day jobs and start competing with me, the price will start to fall, and at equilbrium, economic profit will be zero and accounting profit will be "normal" profit. Overall result: resources are directed into uses most wanted by society.

Marxism:

You don't have to own a business to save. You can own part of a business (stock) into which you can put your savings, you can lend to a business (by buying a bond), you can lend to the government by buying a bond (and savings bonds come in small denominations), and you can lend to a bank by opening a savings account. All these are available to people who are poor.

People at the lower end of the income distribution who consume more than they spend are net borrowers. And who do they borrow from? Savers. If there is tax on consumption only, not all income, there will be more saved funds available to borrowers.

Skrum who buys $16 worth of your product, where does that money come from? You understand now?

It doesn't just appear. It comes from X,Y, and Z. They only have $10. This is why it's necessary that we pawn off our overproduction on other countries.

^^ I guess this would be where inflation would come in, so that economic growth can continue.

Boner,

The $16 comes from people who are willing to pay for the finished product, delivered where ordered and as ordered.

And remember, I had a day job for $5. I increased production by changing occupations, and the guy I worked for had to hire somebody else and bid his wage up (if we have full employment) by $1. Looks like things come out even.

If this hypothetical country is only made up of you, X, Y, and Z the only earning available to buy goods come from you, X, Y, and Z. Since it is assumed you spent all your money ($10) buying goods and services from X, Y, and Z you need to sell your product for at least $10 to recoup your investment. Since X, Y, and Z only have $10 to spend on your product the most you could possibly sell is $10. So you inherently produce more than you can sell in a closed market. This is why capitalism requires non-industrial countries.