Friday, April 17, 2015

100% Tax Rate

Reply to: Tax Choice Discussion Thread

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Like I already explained, congress would still be there in a tax choice system. And, they would still be in charge of the tax rate. If congress sets the tax rate too low, then people would boycott congress. If congress sets the tax rate too high, then people would also boycott congress. Therefore, the tax rate at which congress maximized its revenue would be the optimal tax rate.

What do you think the optimal tax rate would end up being?

The only thing currently wrong with the public sector is the absence of consumer choice. Once you add consumer choice... then it's entirely possible that the public sector might entirely replace the private sector. Why? Because in the public sector... what you paid would more accurately reflect your valuation.

In the private sector... it's possible to get a really great deal on shoes. What does this mean? It means that the amount you paid is far less than your valuation. The amount of money you handed to the cashier in exchange for your shoes does not accurately communicate your valuation. Basically, you lied. The logical consequence is that the supply of shoes will be incorrect. Garbage in, garbage out.

But in the public sector, with a tax choice system, it's impossible to get any kind of deal. Let's say that you perceive a shortage of environmental protection. How much are you going to pay the EPA? Well... whatever you pay is going to perfectly correspond to the marginal improvement in environmental protection. The more money you pay, the more environmental protection will be supplied to everybody. So you'll pay whatever amount matches your valuation. You can't lie. The logical consequence is that the supply of environmental protection will be correct. Treasure in, treasure out.

When we get more and more treasure from the public sector... congress will get more and more positive feedback (tax dollars) for raising the tax rate. Until eventually we have a Dept of Shoes (DoS). You'll order shoes whenever you perceive a shortage of shoes. And the amount of tax dollars you give to this DoS will perfectly correspond to your valuation of shoes.

There you go. I just predicted that we'll end up with a 100% tax rate. Your turn. Predict the tax rate that we'll end up with. And please show your work.

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The results of the poll were really surprising...




31% of respondents want some tax choice?!!  I know it's not a very credible survey but I was pretty sure that the percentage would be a lot smaller.

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