Fiscal Challenges: An Interdisciplinary Approach to Budget Policy

Fiscal Challenges: An Interdisciplinary Approach to Budget Policy.
Elizabeth Garrett, Elizabeth Graddy, Howell E. Jackson (공)저,
Cambridge University Press, 2008

※ 메모: Michael J. Boskin:

... A pure consumption tax, however levied, would guarantee both [intertemporal neutrality and atemporal neutrality]. Note that the consumption-saving neutrality is independent of the structure of marginal rates. A progressive consumed-income tax can be neutral for traditional saving and investment. It is, however, important to note several practical issues in comparing real-world, as opposed to textbook, income and consumption taxes.

• First, intangible investment such as research and development accounts for a sizeable portion of investment and is accorded "consumption tax" treatment by expensing in the
  income tax.
• Second, both income and consumption taxes tax above-normal returns to saving.
• Third, an impure consumption taxes, such as one that allowed deductibility of both saving and interest, could wind up subsidizing investment.

Most current "tax systems" are really hybrids of pure income and pure consumption taxes or, even more precisely, range from subsidy to single, double, triple, or quadruple taxation of saving.

In modern economics and in the economic development process, human capital, the investment in knowledge and skills of the labor force primarily through education and on-the-job training, is vitally important to growth. And the consumption-tax neutrality argument for human investment only holds for a flat rate. As I first demonstrated 30 years ago, it is the progressive rate structure that deters human capital investment. Most on-the-job training and much of higer education costs are financed by foregone earnings, which are not taxed. To take a simple example, suppose an early career worker earns $60,000, but one-third of his or her time is spent acquring skills. Thus, the $60,000 is pay for the two-thirds of time; the other one-third of time is compensated by the skill acquisition. To economists, the worker is earning $90,000, paying $30,000 for the skills and netting $60,000. But the structure of the job(not to mention personal tax savings) makes it convenient to suppress the $30,000 "transaction" between the worker and the firm. It is as if the foregone earnings were included in taxable income, but then immediately expensed. A flat rate does not affect the net return to such human investment decisions, but a progressive rate structure would reduce the returns and impede investment because the higher earnings generated by the investment would be taxed at a higher rate than that at which the investment was expensed. Thus there is a serious trade-off between the goals of equity and efficiency in the tax system. Low-rate(s) consumed-income taxes combined with efficient and targeted transfers would appear to be the best combination in many circumstances.