[Conservative Goddess]

"Oy! Because the taxes in wages can also be in prices. That's the point, to get the embedded taxes out of prices you would also have to get them out of wages, ie. reduce wages."

That is an absolutely incorrect statement. The total entity level tax burden is allocated to investors in the form of reduced return on investment, to employees in the form of REDUCED wages and benefits, and to consumers in the form of higher prices.

The ultimate incidence of entity level taxation is allocated by market forces, but in the process is neither expanded or reduced in GROSS TOTAL. They're like a water balloon with a fixed volume...you can change the shape of the balloon, but the total volume is constant. By definition, taxes which are incident on the employees are not part of the cost of a good. Likewise taxes which are incident on investors are not part of the cost of the good. Taxes which are a part of the good and not incident on the employee or the investor.

Taxes that are incident on the employee are a REDUCTION in wages. Removing that embedded cost will INCREASE wages....not reduce them. Removing the embedded tax cost from goods will REDUCE their price. Removing the embedded tax which is manifest as a reduced return on investment will INCREASE return on capital.

There will be no reduction in nominal wages as a result of removing the embedded tax cost. On the contrary, nominal wages may increase.

[Principled]

Isn't he a piece of work?

Water is dry. Red is yellow.

He thinks if he says something so preposterous enough, he's at least going to fool somebody. In the process, he looks quite foolish. Of course, he does have problems communicating clearly.

[Your Nightmare]

"Oy! Because the taxes in wages can also be in prices. That's the point, to get the embedded taxes out of prices you would also have to get them out of wages, ie. reduce wages."

That is an absolutely incorrect statement. The total entity level tax burden is allocated to investors in the form of reduced return on investment, to employees in the form of REDUCED wages and benefits, and to consumers in the form of higher prices.

You are talking about corporate taxes only. We were talking about all taxes. If personal income taxes were incident on consumers (as the FairTaxers imply) then nominal wages wouldn't be lower because of the PIT, they would be higher (to make up for the tax) - as would prices.

For the PIT to be incident on the employee, their nominal wage doesn't have to change, just their after-tax wage. For the corporate income tax to be incident on the employee their nominal wage would have to be reduced.

The ultimate incidence of entity level taxation is allocated by market forces, but in the process is neither expanded or reduced in GROSS TOTAL. They're like a water balloon with a fixed volume...you can change the shape of the balloon, but the total volume is constant.

That was my point. You can't have "embedded taxes" that go beyond the total taxes the government collects. Pigdog was saying otherwise.

By definition, taxes which are incident on the employees are not part of the cost of a good.

Correct, but for prices to drop due to the eliminate of a tax, that tax must be incident on the consumer. The only way for a direct tax on the employee (PIT) to be incident on the consumer is if wages are higher (the tax is in wages, but not incident on the employee, and in prices). For that matter, for the corporate income tax to be incident on consumers, the nominal return on investment must be higher than they would otherwise. If you eliminate the corporate income tax, for prices to drop, so must nominal returns on investments.

There will be no reduction in nominal wages as a result of removing the embedded tax cost. On the contrary, nominal wages may increase.

As I explained, any direct tax on the employee that is incident on the consumer causes nominal wages to increase. To remove this tax and have prices reduce would mean nominal wages would have to be reduced.


All this being said, I don't think the vast majority of taxes are incident on the consumer (and the idea "cascading, embedded taxes" is bunk), that's why I don't believe producer prices would fall much after switching to a NRST and it would be impossible for them to fall significantly without nominal wages falling also.