The Tax Bite

Daniel Gross has a good article in the NYTimes discussing the issue of tax revenues. It basically concentrates on the performance factor of the economy, and whether Federal or State tax revenues give the best definition of economic success or failure. I would like to concentrate upon the economic fuel question of such taxation, following the two previous Posts I have made. What type taxes do What?

Republicans and Conservatives of all Stripes focus on Federal Income taxes as the mechanism of economic fuel for the economy. State taxes are ignored, or at best, declared to be injurious to economic fuel efforts. This is at conflict with most Conservative demands which suggest taxation should be shoved off on Consumption. State level taxation contains the greatest Consumption taxation at present, through the median of Sales and Property taxes which make up over 60% of State level tax revenues. Consumer Demand is composed of People who have both the desire and ability to pay for Goods and Services. Consumption taxes decrease both the desire and the ability to pay. A method of discerning the effect is to translate Product Price to the term Product Income; an Income which is taxed 12-14% under the best of Conditions in the State taxing format. The only real difference between Product Income and Worker Income stands in the willingness of Business to raise that Income.

Consumption taxation can be estimated to decrease Consumer Demand by at least 2% in real terms (adjusted for Inflation). Every Businessman and Economist will tell you that Consumer Demand has been on the increase since 2001, but they hesitate to tell the Reader that Consumer and Mortgage Debt has been soaring as well. Incomes have not risen as fast for any Consumers, except Those most capable of exploiting the Bush Tax Cuts. Median Incomes, adjusted for Inflation, have not materially gained in the intervening Period. Consumption retains a fairly stable relationship to Population size of Income class (we all need the Necessities), though the matrix of Consumer Products vary drastically.

The Bush Tax Cuts, plus the federal government push of Social Welfare Costs onto the States, has actually decreased Consumer Demand, and fueled Inflation. The Bush administration refusal to limit federal spending, has actually maintained constant pressure on Median Incomes and below through Inflation, while pressuring the States to raise their Consumption taxation. Personally asked if the Bush Tax Cuts were good for economic performance, I would advance a definitive great No. Will there be a downturn in Consumer Demand if Conditions remain the same. A very positive Yes. lgl