I no longer believe in capitalism. At all.

[snoopy369]

I think some of you socialists defenders of the poor haven't really considered how consumption taxes would work in real life. We already have a kind of consumption tax - sales tax. Not a consumption tax per se, but perhaps a model for how it would be implemented.

In much of the US, we have tiered sales taxes. In Illinois (add 3% or more if you live in cook county, yay!)

• 6.25% - most purchases (iPods, leather sofas, etc.)
• 1.00% - Food and drugs (poor people buy a lot of these), not counting restaurants (those are at 6.25%)
• 9.25% - Soda/other drink with < 50% juice that is not milk or water
• .39/gallon - Gas
• .98/pack - Cigarettes and similar

Etc. - there are a bunch more, that's just a few. This is probably how a real-life consumption tax would be modeled; some things would probably be exempted in some fashion so that the poor wouldn't pay an unreasonable proportion. Now, instead of an exemption for income up to $17k, you'd have an exemption for consumption up to $17k (or some number that makes sense). You might exempt rent from consumption tax (not currently done, so net gain for poor people who often spend 30% or more of their income on rent). Different types of consumption could be taxed differently, so consumption of household goods could be treated differently than luxury goods.

That's the great thing about consumption taxes - you can be a lot more flexible with them than income taxes. Income is use-agnostic; you earn income whether or not you will spend it on things you need or things you just sort of want. So you have to consider a household of 4 who earns $80k in New York largely the same as a household who earns $80k in Topeka, even though the former is going to spend all of that money just scraping by (well, maybe not McDonalds every day level, but is going to be pretty much paycheck to paycheck with little room for savings unless they live in a really bad neighborhood or have a two hour commute) and the latter is probably saving almost half of that, if they even remotely try. Consumption taxes would not treat them identically - the Topeka family would have the incentive to save money, and if they instead spent it on buying iPhones and whatnot, they would be taxed appropriately.

[Ben Kenobi]

Why would the Porsche price climb with a higher demand? Would it not be the other way around?

Supply stays fixed. Demand rises, supply is fixed, so the Porsche price increases.

In the second case - demand drops, supply is fixed. It costs money to warehouse the unused supply, so the costs increase.

In the first case - the supplier should increase supply to get in the sweet spot, in the second case, they will decrease the supply to hit the sweet spot.

We want rich people like Jag to buy the same stuff we do because that reduces our costs on aggregate. Actually, what we want rich people like Jag to spend their money where it is most effective. Same as everyone else. The more rational the market the better off everyone else is. If Jag can get more car by buying a different one, then we want him to do that.

[kentonio]

That's the great thing about consumption taxes - you can be a lot more flexible with them than income taxes. Income is use-agnostic; you earn income whether or not you will spend it on things you need or things you just sort of want. So you have to consider a household of 4 who earns $80k in New York largely the same as a household who earns $80k in Topeka, even though the former is going to spend all of that money just scraping by (well, maybe not McDonalds every day level, but is going to be pretty much paycheck to paycheck with little room for savings unless they live in a really bad neighborhood or have a two hour commute) and the latter is probably saving almost half of that, if they even remotely try. Consumption taxes would not treat them identically - the Topeka family would have the incentive to save money, and if they instead spent it on buying iPhones and whatnot, they would be taxed appropriately.

So you want government mandated control over individuals spending behaviour? Those on lower incomes should be told what is good for them, and punished if they wish to purchase items that the state decides are only suitable for the wealthy?

[snoopy369]

Why would the Porsche price climb with a higher demand? Would it not be the other way around?

Please go back to Economics 101 and re-read the material prior to commenting on this thread. Thanks.

Really, think about it. If people want to buy more of something, does it:
a) go up in price
b) go down in price
c) stay the same in price
*with supply kept constant*? Sure, they make more of it, which is why price only goes up a bit - but they're not going to make so much more that the price goes down, are they? They'll find the equilibrium (hopefully) and that will be somewhere with higher supply and higher price.

This is only generally true of an already-mature product, by the way - we're not talking about taking something a guy is selling on his website in one off deals and suddenly mass producing it; we're talking about something that already has the efficiencies of mass production and whatnot, and just making some more. If you throw in supply-side cost reductions into the mix you're going to end up in a totally different place, and that's not generally appropriate for this sort of simple discussion.

[Ben Kenobi]

You can't serve two masters

So it's bad for me to chase a better teaching position and promotion?

[snoopy369]

Um, we do this now. Look at the 1040 (in the US). I'm not talking about the government going item by item. I'm talking about general categories of goods, you can adjust the tax based on 'tax on consumption of necessary things' versus 'tax on non-necessary things'. We do that now on income tax forms and in sales taxes - it's just more complicated, and really you've got a consumption anti-tax versus an income tax which is just dumb.

And yes, if poor people buy non-needed things, they should be taxed more. That's why there is the exemption in the first place - for people who don't have the money to buy unnecessary things. If they're poor but find $500 for an iPhone, they can pony up the dough for the tax.

So you want government mandated control over individuals spending behaviour? Those on lower incomes should be told what is good for them, and punished if they wish to purchase items that the state decides are only suitable for the wealthy?

[kentonio]

Really, think about it. If people want to buy more of something, does it:
a) go up in price
b) go down in price
c) stay the same in price
*with supply kept constant*? Sure, they make more of it, which is why price only goes up a bit - but they're not going to make so much more that the price goes down, are they? They'll find the equilibrium (hopefully) and that will be somewhere with higher supply and higher price.

This is only generally true of an already-mature product, by the way - we're not talking about taking something a guy is selling on his website in one off deals and suddenly mass producing it; we're talking about something that already has the efficiencies of mass production and whatnot, and just making some more. If you throw in supply-side cost reductions into the mix you're going to end up in a totally different place, and that's not generally appropriate for this sort of simple discussion.

You don't think the supply cost of Porsches could be reduced if they were produced in larger numbers?

[Kidlicious]

So it's bad for me to chase a better teaching position and promotion?

You said that you're greedy.

[Jaguar]

Why would the Porsche price climb with a higher demand? Would it not be the other way around?

The market price has to increase to make Porsche willing to produce more, especially in the short term. Over the long term, they might get economies of scale, as you mentioned. It's not important, the main thing I wanted you to see is the quantities, not the prices.

Also, isn't that money you are putting into the Porsce workers then being invested back into consumer products by the workers? What about the money that the Porsche owners make? Is that not being further invested into other equity or luxury and consumer goods?

I'll note that you're making the textbook "trickle-down" argument here, but I won't dwell on it; it's a valid question. Notice that on the graph to the right, we're producing less in the way of consumer goods. (You correctly guessed that there's a tradeoff between production of Porsches and production of middle-class goods.) The workers get paid either way, they just have different sorts of work.

The only reason we want this is because we suspect that Porsches are a relatively less efficient use of resources for society - we observe that people don't buy them until many, many other needs are already taken care of. (In other words, Porsches are for rich people.) If you don't care for this argument, then you could just root for a pure flat tax. I do consider this argument valid, which is why I want taxation to be progressive.

[kentonio]

Um, we do this now. Look at the 1040 (in the US). I'm not talking about the government going item by item. I'm talking about general categories of goods, you can adjust the tax based on 'tax on consumption of necessary things' versus 'tax on non-necessary things'. We do that now on income tax forms and in sales taxes - it's just more complicated, and really you've got a consumption anti-tax versus an income tax which is just dumb.

Yes we do do it now on a smaller scale, that doesn't provide any form of justification for it. In your examples above you seemed to be taking it far beyond the current systems however into a much more punishing form of taxation on more specific items and if you're getting rid of income tax then presumably at a much harsher rate.

I ask again, is your intention to give control over the spending behavior of the poor to the state?

[kentonio]

The market price has to increase to make Porsche willing to produce more. If they could sell more at current prices, they'd already gladly be doing it.

Yes but we were talking about an increase in demand. Surely the reason they can't sell more at the current rate is because the demand isn't currently there?

I'll note that you're making the textbook "trickle-down" argument here, but I won't dwell on it; it's a valid question. Notice that on the graph to the right, we're producing less in the way of consumer goods. (You correctly guessed that there's a tradeoff between production of Porsches and production of middle-class goods.) The workers get paid either way, they just have different sorts of work.

The only reason we want this is because we suspect that Porsches are a relatively less efficient use of resources for society - we observe that people don't buy them until many, many other needs are already taken care of. (In other words, Porsches are for rich people.) If you don't care for this argument, then you could just root for a pure flat tax. I do consider this argument valid, which is why I want taxation to be progressive.

I probably just don't properly understand this point. I don't see how an increased demand for luxury goods is going to cause a reduction in demand for necessities. Surely the whole point of them being necessities is that they are, well necessary? As I say, I'm probably misunderstanding what you're saying here though.

[Ben Kenobi]

You said that you're greedy.

Yes, I'm greedy for the following things.

1. A wife
2. Kids
3. A decent job
4. A house.

Those are my wants right now. That's what I'm working towards.

So yes, I'm greedy for working above my station.

[Jaguar]

I edited to help reply to stuff you had said while I was writing the post. You are right that the supply curve for Porsches need not be upward-sloping in the long run, although it is almost certainly upward-sloping in the short run.

I probably just don't properly understand this point. I don't see how an increased demand for luxury goods is going to cause a reduction in demand for necessities. Surely the whole point of them being necessities is that they are, well necessary? As I say, I'm probably misunderstanding what you're saying here though.

As for this part: it doesn't change the demand. It changes the supply, as indicated by me adding a second supply curve. The annotation I put on the graph doesn't change anything about how much people want consumer goods. It just changes how ably the consumer goods industries can provide them. They have a harder time doing so, because rich people are too busy spending their resources on Porsches instead.

[snoopy369]

Yes we do do it now on a smaller scale, that doesn't provide any form of justification for it. In your examples above you seemed to be taking it far beyond the current systems however into a much more punishing form of taxation on more specific items and if you're getting rid of income tax then presumably at a much harsher rate.

I ask again, is your intention to give control over the spending behavior of the poor to the state?

Wha? Again, I did not suggest anything close to that. I suggested having perhaps a few tiers. Do you know how many things we punish/incent people to buy now??? At least in the US, it's quite a few.

In any event, yes, I do suggest the government having a few tiers of consumption taxes based on 'necessary' goods versus 'non-necessary' (ie, luxury) goods. It could be done by looking at what we actually spend it on, or by simply assuming people have a certain amount of spending that is necessary and anything beyond that is not. Look at my original post, for that matter. I specifically mention having an 'exempt' amount and then a taxed amount. Even if we do look at tiered what-you-consume taxes, though, I don't think that is unreasonable at all. It's how you make the tax progressive. You are looking at this in the worst possible light, as "penalties for poor people buying luxury goods". Baloney. It's how you make a tax progressive. You just look at it from the wrong angle... these are exemptions to allow poor people to not be as heavily taxed.

I really do believe consumption taxes when done properly can be more progressive and more socially beneficial towards the poor and middle class than income taxes. I don't know why you automatically hate them.

[Kidlicious]

I really do believe consumption taxes when done properly can be more progressive and more socially beneficial towards the poor and middle class than income taxes. I don't know why you automatically hate them.

Like I said, there are rich people who make over 500 times what I make. There is no way you are going to make is progressive enough to get me on board. There is just no way. Why? My pocket book. I'm not buying into anything that is either foolishly planned out or is a gimic to make the rich richer.