But sales taxes change the prices of goods much more directly than other forms of taxes.
And income taxes change wages and benefits. And corporate taxes change compliance costs.
Also, if a good is very inelastic, then a sales tax on it doesn't affect quantity supplied much or at all even if it raises prices. This matters because GDP is output and it the quantity output is unchanged, then it's good, all else equal.
I said taxes affect prices and quantity supplied but that includes wages and labor supply.
First of all, investment is the opposite of saving, what encourage saving discourage investment and vice versa.
You've got this wrong, saving is the opposite of consumption.
Not sure why this has gotten mentioned here a few times the past month. Savings is not the opposite of investment; in fact you can see savings as equal to investment in the long run.
In fact, when investment increases, we see savings increase in the long run coming back into equilibrium. Simply put, what is saved gets invested.
The IS-LM model explains all this. In the long run, Savings = Investment (with savings defined as both private and public savings combined).
Also, income tax doesn't really penalize saving on the personal level, it's not like I can buy things with my pre-tax dollars, it does discourage corporations from saving, or more accurately, sitting on a mountain of cash, but that's not a bad thing, unless you're a supply side economist (are you? I tend to assume the worst about Lakers fans, but I'll give the benefit of the doubt).
Income taxes most certainly taxes savings on a personal level. Ever save money? What happens when you fill out your taxes? You're taxed on what your savings accrue (granted the interest rates are such shit right now it's nothing). If it's sales taxes only your money accrues tax free.
If you make $50k and pay 20% of it to taxes, you have $40k after tax dollars. With no income taxes it's just $50k (really, it's less because wages would drop but I don't want to get complicated so let's stay simple).
Even if you buy the same packet of goods and services under both scenarios and let's assume it leads to 20% of your income in the sales tax scenario going to taxes, you can still spend and save $40k. Let's assume you spend $30k in the former and $40k in the latter ($10k taxes). You save $10k in both scenarios. At a 3% annual interest rate, which one will be higher in 10 years? Well, the latter since in the former you pay tax on it every year.
Supply-sider? Hell no. You said that sales taxes had no benefits. I was simply correcting you. I am not arguing sales taxes are always better and I've been pretty adamant against the idea of sales taxes replacing our income taxes (in fact, the Fair Tax is the dumbest tax proposal we've ever seen).
I'm just correcting what you said. Taxes have pros and cons and we have to establish who we want to pay and once we do that figure out the most efficient way to do it by weighing pros and cons.
I don't think they're easier to enforce, they definitely create more avoidance, which is a bad thing.
Sales taxes are much easier to enforce than income taxes. You cut down on the paperwork immensely. All major corporations have little way around it. A few million people reporting taxes or 100 million?
There's avoidance for income taxes, too. Ever report that $50 you won from your fantasy football league? Or that $500 baseball card you sold on ebay? Or are you Mitt Romney with off-shore accounts?
A VAT also makes it very hard to avoid the tax at most levels.
As for the deadweight loss issue, I've never seen it address taxes in such gradual level, it was about the level of taxation and maybe some simple modeling about the
progressiveness of the tax code, never the details of collection mechanism.
DWL is dependent on the elasticities of the market being taxed. Different taxes are for different markets.
That doesn't mean it's wrong, that means that this theory claim that increased inequality yield better economic efficiency, and if that's the case you're making (please say if I'm barking at the wrong tree though) I think it can and should be attacked on more substantial ground that the efficiency of the markets.
I am not saying inequality yields better economic efficiency. I am saying sales taxes tend to be more efficient at the low levels.
You know, you can have a sales tax (which is regressive) and then rebate the people who need it to remove the regressivity at the bottom. For instance, instead of taxing people who make $10k at 5% total, you could have a 4% sales tax and rebate people who make $10k $400. Not only would the person have the same money to spend in the end, it would increase efficiency in the economy.
I believe some states do just that and they're better off for it. There are many things you can do to be more efficient while driving down inequality. Just because we have idiots like Jindal who want sales taxes because it taxes the rich less doesn't mean you can't use sales taxes and still shift burdens away from the poor.
Finally, you really need to show that "market distortion" is a bad thing.
All market distortions are bad. But, and this is important, in a real economy (opposed to the ones on paper), all markets are distorted without gov't intervention. My belief is it's mostly the gov't role to remove the "distortion," which is defined as away from the competitive price and quantity, while weighting against social welfare (if distortion brings a better social welfare outcome, then it's fine).
I mean, minimum wages distort the market in a more profound way than all our tax code put together, does that mean it's a bad thing?
Minimum wages only distort perfectly competitive markets. Ours aren't. Minimum wages in real life actually remove the distortion which is why Card and Kruger, as well as other economists, have found positive correlations with minimum wage hikes and employment.
Minimum Wage laws are good because the rectify the assymetric information gap between employers and employees.
