Taxation and Goat Farming

Charlie Musick has an excellent post on the effects of taxation on a goat farmer at RealClearMarkets:

For a goat farmer, government is necessary and does play a very worthwhile role. The government prevents foreign armies from invading and taking the goats (national defense), other people from stealing the goats (justice), or someone from running the goat farmer off the land he uses to raise goats (protect property rights).

In this example with goat farming, it does not matter whether the government is getting goats through taxing new ones(income tax), borrowing goats from the herd (deficit spending), or stealing the goats at night (monetizing debt). When the government takes goats by any means, it destroys wealth and lowers future tax revenues.

However, I think that I draw a rather different conclusion from his example than Mr. Musick does. Unlike Mr. Musick the move to “raise taxes on the rich” doesn’t “get my goat”. His example leads me to the conclusion that the impact of taxation varies based on the underlying economies of the enterprise and that one size does not fit all. What’s a reasonable tax on a banker may not be a reasonable tax on a goat farmer may not be a reasonable tax on a children’s book author may not be a reasonable tax on a doctor may not be a reasonable tax on a manufacturer. Perhaps we shouldn’t be taxing income (production) at all. Shouldn’t we be taxing consumption?

13 comments… add one

  • Shouldn’t we be taxing consumption?

    now you’ve done it….

  • PD Shaw

    The linked piece does not account for what is said in the first excerpted paragraph. Without government, the goat farmer will need to sell some portion of the goats to provide security for the goats (such as guns), without justice and a marketplace that protects property rights, he will find it difficult to trade/sell his goats without suffering significant transaction costs. (I sell you goats for a bushel of wheat and later discover the bottom of the bag is dirt) These things cost goats too.

  • Just to be clear, while I think it is indisputable that there are necessary functions of government, I don’t think that

    a) there’s a straight line between the necessary functions of government and everything that government does today and

    b) the necessary functions of government are best supplied on a centralized basis

    The real, practical choice isn’t between no government at all and totalitarianism. It’s a question of right-sizing. Some people think that the right thing to do is to err on the side of not enough government; others think the right thing to do is to err on the side of too much. That’s a difference in preference that’s being cast as a Battle between Good and Evil.

    Besides most of what the government does these days is orchestrate transfer payments. You’re talking about direct government production. A lot fewer people have problems with that than with the transfer payments that constitute so much of what the federal government does.

  • Perhaps we shouldn’t be taxing income (production) at all. Shouldn’t we be taxing consumption?

    Yes, but sensible ideas are just fricking stupid.

    Sheesh, Dave, wake up and smell the coffee dude.

  • TastyBits

    This is too simplistic for anything other than an elementary primer. I agree with @PD Shaw. I would add that the FDA allows one to eat a goat meat sandwich with some assurance it will not result in death. This increases the goat meat market substantially.

    While taxing income may not be an ideal method, changing to another method is not necessarily good. A lot of the economy is based upon taxing income, and it would have a substantial impact. A lot of thought should go into any changes, but the 16th Amendment would need to be repealed. I would expect our old friends power and money to have a large role.

    I am mostly concerned with people like me. We are too rich to be poor and too poor to be rich.

  • A lot of thought should go into any changes, but the 16th Amendment would need to be repealed.

    Not true. The 16th amendment just gives the Congress the power to tax income it doesn’t make an income tax mandatory.

  • TastyBits

    @Dave Schuler

    If they have the power, they will use it.

  • steve

    Sure, tax consumption. Do away with the corporate income tax also. Make the death taxes larger so we incentivize creation and innovation and avoid a kleptocracy. Exempt new businesses from taxes for a few years. There is a lot we could do, but I think we are most likely to get gradual change, so the income tax will stay. I would much rather we decide what it is we want govt to do, then actually pay for it, than spend too much time on how we obtain the tax monies.

    Steve

  • I would much rather we decide what it is we want govt to do, then actually pay for it, than spend too much time on how we obtain the tax monies.

    I think we’ve already decided: we want government to do everything and we don’t want to pay for it at all (or, more precisely, we want someone else to pay for it even if the numbers don’t add up).

    Less facetiously, I think that incentives are important and taxes are an important way of affecting incentives.

  • Andy

    I think we’ve already decided: we want government to do everything and we don’t want to pay for it at all (or, more precisely, we want someone else to pay for it even if the numbers don’t add up).

    I completely agree. That’s one reason why I tend to focus on generations. There’s a generational game of “hot potato” going on and it remains to be seen which generation(s) will get the blisters.

  • Andy

    Thought this might interest Dave and the regulars as it’s a topic we’ve discussed before.

  • Make the death taxes larger so we incentivize creation and innovation and avoid a kleptocracy….

    I think this would have little impact. I agree with the intention, but frankly all people would do…well those that care about their kids…would be to make their “bequests” prior to death. Granted, that might make it fall into a higher bracket, but it wouldn’t avoid the kelptocracy problem.

    Exempt new businesses from taxes for a few years.

    Either have business taxes or don’t. This kind of mish-mash would likely cause a miss-allocation of resources.

    There is a lot we could do, but I think we are most likely to get gradual change, so the income tax will stay.

    Yes, because we want less income! Brilliant.

    I would much rather we decide what it is we want govt to do, then actually pay for it, than spend too much time on how we obtain the tax monies.

    Stick to medicine.

    1. We clearly cannot pay for the government we currently have.
    2. Tax incidence is important and not always straight forward. For example, you decide to tax…mmmm…tennis shoes. So you levy a tax on tennis shoes. Now who pays that tax? What is the deadweight loss? Now, if we have N commodities and want to tax all of them, what tax rate should we use?

  • steve

    As said, I also favor taxing consumption, but there is no popular movement pushing for that kind of tax. For the foreseeable future we will have an income tax.

    Steve

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