o Marty Feldstein: 30% of the value of the taxes is lost through dead weight loss
§ By trying to collect $4 trillion in taxes, we destroy $1.2 trillion in production, consumption, and the economy
· $1.2 trillion = economy of Australia
o The IRS is costly
§ We must pay for the people who monitor the tax
· 45 cents for every dollar of tax collected goes to collecting the tax
§ Are producing no value
§ 106,000 people work for IRS and produce nothing
§ Massive built-in bureaucracy that doesn’t want to leave
§ Tax code is a mess
· Rizzo’s taxes: 51 pages for federal, 25 for state
· Time and effort for preparing taxes: $400,000,000,000 per year in lost man-hours
· Top 5 companies in Fortune 500 workforce combined is smaller than the people employed as tax professionals
o Effective taxes we pay are too low, ineffective taxes are too high
§ General Electric paid -3 billion in taxes last year due to net subsidies
· 57,000 page federal income tax
· 25 professionals work to make sure they don’t pay taxes
o Estimated impacts
§ Every dollar we raise in revenue today encourages $1.20 in spending
· Future spending increases will need to be paid for in future taxes
o Rizzo refuses to comment on moral case for and against income taxes
· Legal Sales Tax (buyers)
o Initial Equilibrium:
§ P=$3
§ Q= 3 million
o After-tax equilibrium
§ Pbuyers= $3.75
§ PSellers= $2.75
§ Q= 2.75 million
§ Taxes: $2.75 million
Buyers | Sellers | |
Initial Price | $3.00 | $3.00 |
New Price | $2.75 | 2.75 |
Taxes | $1.00 | None |
Economic burden | $0.75 | $0.25 |
o SO similar to the other tax, but this one is actually mean to affect the buyers
· Payroll Tax
o Payroll taxes are supposedly split 50-50 from workers and firms
§ Burdens both workers and firms in theory
o Paul Krugman: All economists agree is a tax actually paid by workers.
§ The elasticity of supply and demand in the labor market is incredibly high (over 3)
· You increase worker costs by a dollar, they will decrease workers by the equivalent of three dollars
· You increase costs 10%, firms will fire 30% of their workers
§ 15% of the 15.3% is burdened on the workers
o 2010 Rizzo taxes:
§ $6,100 in federal taxes, $4,700 in state taxes; $14,800 total
§ In sales taxes, he also paid $4,000
§ Excise taxes, he also paid $1,500
§ Property tax equivalent to $6,500
§ TOTAL OVERALL TAX: $37,800 (out of $90,000)
o Should payroll tax reduction continue?
§ Economically speaking, yes
· There is very little we can efficiently tax that won’t hurt the economy
o Good to tax
§ Addictive goods
· Cigarettes
· Alcohol
§ Death Tax
§ Certain kinds of food
· Bread
· Chicken
§ Head Tax
· Taxing the number of people who live in your family
· Only way to avoid is to kill yourself
o What you want to tax is something that has relatively inelastic supply and demand
o Corporations are people
§ When you tax them, you are taxing the people who work in the firms and the shareholders
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