Tuesday, June 15, 2010

No Closing Time for Income Taxes

New York Times article "No Closing Time for Income Taxes" (June 11th, 2010) cautions against relying on marijuana taxes as partial substitutes to income taxes based on America's experience with repealing prohibition:
Prohibition had been dead for three years, but the damnable taxes Pierre du Pont had expected to die with it lived on. Contemporary Californians indulging a fantasy of income tax relief emerging from a cloud of legalized marijuana smoke should realize that it is likely only a pipe dream.
However, the article gives no reason why the prohibition experience should generalize to marijuana. Specifically, the article notes a major confound to the repeal of prohibition--the New Deal--but maintains its position that the effects of taxing alcohol will be similar to those of taxing marijuana.
Roosevelt and Congress did respond to the repeal windfall by cutting income tax rates for workers earning less than $3,000 a year. But the New Deal had little sympathy for the wealthy, whose taxes actually increased over the next few years. Rather than the trade-off du Pont expected, the government used the excise income to expand.
Argument by anecdote, or by one historical experience confounded with everything else that happened at the time, should leave anyone unconvinced.  In a time of economic recovery, when the Republican party is gaining favor, why would we expect taxes to rise?  Certainly, this is not the same landscape as Pierre du Pont saw cloud his attempt at income tax relief.  History should be analyzed with its complexity in mind, not applied blindly.

We may, however, rehabilitate the point in an economic manner by suggesting that government spending obeys the law of demand: as the price of government taxation goes down, as it would by introducing a new good (an economic result from Ramsey's Optimal Tax), then we should expect consumption of government to go up.

1 comment:

  1. Government, particularly for the Democrats, is all about expropriating wealth created by some in order to give it to their own constituents using whatever rationale they can fashion for the purpose. Like the continuation of bridge and causeway tolls long after the bridge or causeway is long since paid off and monies for its maintenance in perpetuity are put away the toll continues. Any route for the draining of economic blood from any population susceptible to the draining is kept open. Plan on it. Some things never change. Parasitism is one of them.