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Economic Immorality

We all have something in common: we were brought into this world by someone(s) who were already here. Maybe deliberately, maybe not. But none of us asked to be born.

In this way, creating life is sort of a cruel joke the living play on the unsuspecting newcomers. We are all brought to be at a time and place and in circumstances we didn’t choose.

The ethic of “personal responsibility” in this context is a farce that serves to perpetuate inequality. Instead of all newborns being given a pro rata share of human achievement, some get much much much more (and access to more still), and some get much much much less (and access to none). Now go be “personally responsible.” hahahaha Come on.

It is immoral for we—the living—not to consider that WE are the ones who create the conditions into which new people are born. We are responsible for the systems, the economic burdens, the social stratification, and the inequality of opportunity that exist for every new person.

We are just really good at absolving ourselves of that responsibility.

Capitalism is amoral. But that doesn’t mean our implementation of it can’t be immoral.

Governor Dayton’s Sales Tax Reform and Apocalyptic Business Rhetoric

I saw varieties of this argument floating around Twitter (and elsewhere) yesterday:

Governor Dayton’s tax plan purports to raise $2 billion in revenue via sales taxes; Minnesota middle-class taxpayers will indirectly be the source of this new revenue as businesses raise prices.

The idea being that the $2 billion has to come from somewhere, and sales tax (like all business taxes?) ultimately comes out of consumers’ wallets.

This is a pernicious falsehood, however.

Governor Dayton’s budget proposes raising revenue via a broadening of the transactions subject to state sales tax. The governor projects the state will collect just over $2 billion by taxing services, including, particularly, services performed by one business for another like “legal, accounting, specialized design and business support services.”

Assume as a given that the estimate is accurate, and that the proposed 5.5% tax on those services will raise $2 billion. Given that assumption, there is NO support for the argument that the $2 billion will come from Minnesota consumers’ pockets.

The 2011 Minnesota Tax Incendence Study states that a tax (in its example, a property tax) “may lead [a] firm to raise its prices, lower its pay to employees, or the business owner may experience reduced profits.” Only one of those three alternatives falls 100% on Minnesota consumers: lower pay.

While it may seem at first glance that a business opting to raise its prices in the face of increased costs would be a direct hit on Minnesotans’ wallets, it is not that simple. First, not all businesses can shift taxes onto consumers. The Tax Incidence Study recognizes this, noting that for its purposes: “producers of ‘local market products’ are assumed to pass tax differentials on to consumers but producers of ‘national market products’ cannot.” Second, businesses with (inter)national reach like Best Buy, 3M, and Target, sell to consumers outside of Minnesota. To the extent they would face increased costs under the new regime (and are able to shift some or all of them to consumers, and aren’t able to avoid them by doing the work internally or having it done elsewhere), those costs would be passed on to a class of consumers much larger than those residing in Minnesota.

The Tax Incidence Study determined for various business taxes what percentages were borne by capital, labor, and consumers, and what percentage is exported. Of all the taxes investigated, NONE fell 100% on consumers. It found that 56% of “General Sales and Use Tax” fell on consumers as a price increase, 0% fell on labor in the form of reduced wages, and 37% was exported from Minnesota altogether. At least one person argued to me that the newly reformed sales tax would be approtioned identically. It isn’t necessarily so, but assume it to be true for the sake of argument.

That means of the $2 Billion proposed, only 1.12B will be paid by Minnesota consumers indirectly in the form of higher prices, and there will be no effect on jobs.

But there is reason to believe the allocation will not be the same as the existing sales tax. Businesses that seek to avoid higher prices for business services may elect to in-source the work. Instead of using an accounting service, they may hire a part-time accountant. That may in fact have a slight multiplier effect on employment, while resulting in little to no increased costs (after all they hired the accountant to avoid the tax). Or, the tax may be borne in part by the Accountant’s firm, which lowered prices to (partially?) offset the tax, meaning there are two businesses that might share in absorbing some of the cost rather than passing it on to some end-consumer somewhere.

The effect, I would argue, is that the tax will be dissipated throughout the economy more thoroughly than the present sales tax. It is at least probable that the distribution of the existing sales tax is not an accurate gauge of how the reformed sales tax will be distributed. And in NO EVENT is there reason to believe that all $2 billion will come from Minnesota consumers, much less that it will come from the state’s middle class. At MOST the consumer-paid number will be 1.12 billion, and it is likely to be substantially lower.

Accordingly, the hyperbolic rhetoric that Minnesota consumers or taxpayers, as a class, will bear the entire tax increase in the end, is false. And claims that Minnesota’s job market will be substantially negatively affected are also highly dubious (in the Tax Incidence Study, the largest shift of business tax burden to labor was 12%).