How big is it? $250 Billion? $650 Billion? $3 Trillion? $10 Trillion??? just what percent of the GDP are you claiming is eaten up by {term to be inserted here} costs anyway?
I'll accept James L. Payne's factor as representative of the total tax related overhead costs on top of revenues paid to government:
Where Have All the Dollars Gone?
How the government robs Peter to pay him back.
By James L. Payne, Reason Magazine February '94When the overhead costs are added together, (24 percent compliance costs, 33 percent disincentive costs, and 8 percent other costs), they total 65 percent of tax revenue. Although future studies may come up with slightly different numbers, there is no doubt that the overhead costs of taxation are substantial. This means that every act of self-subsidy entails a significant waste. When the government takes a dollar from Peter to give it back to him later, there is a huge loss attached to the transaction.
Unfortunately, the bad news doesn't end there. Peter is never going to see this dollar, even if it is destined for him, because of the waste in the system for disbursing subsidies."
Plunder Patrol
by Robert W. Lee, New American April 18 '94Counting the Cost
"Tax analyst James Payne pinpoints more than 30 separate burdens which the current tax system imposes on individuals, businesses, and society as a whole, including the costs of compliance and enforcement."
"When the visible and hidden costs associated with tax collection (the vast majority of which have been piled without remuneration onto the private sector) are totaled up, Payne estimates that it costs 65 cents to collect every $1.00 in taxes. For fiscal 1992, that expense would be more than $622 billion, making tax collection the most expensive of all government programs (more than double the defense budget and nearly five times the expenditures on Medicare). "
How much of that goes away
A recent paper I ran across suggests the costs associated with retail sales taxes to be one fifth those associated with the income/payroll tax system.[CATO -- Options for Taxreform PA536 (2005)]
and how quickly does all that cost go away?
How fast can busnesses change how they utilize their resources for productive use instead of in sterile tax avoidence/minimization schemes. How fast does it take businesses to quit doing things they no longer need to do? A year to two years undoing the worst of it? Your guess is a good as mine.
Perhaps you be willing to start another thread to discuss this? This thread has lost a bit of steam.
Don't see that it makes a lot of difference in terms of my essential reasons for going with an NRST, since those are primarily philosophical and not economic. That is in spite of the fact that these threads tend to bog down in economic minutia rather rapidly.
The main thing I look to clear up in this exchange is what the Jorgenson study actually implements, and how his numbers should best be interpreted in light of real world behaviour and tax overhead costs that he apparently simplifies out of his IGEM analysis.
From what I can see, any tax related cost savings would act to increase the individual's purchasing power over the findings of the Jorgenson studies and the wage thing is best interpreted from a sticky wage perspective due to contractual restrictions that prohibit much downward movement in wages in contrast to what Jorgenson allows in his implementation.
Who is James Payne and what hole did he pull these numbers out of? This guy just spits out numbers without any backing. At least the $250 Billion number had some research behind it, and even that most of that number is not applicable to costs to businesses. Some random quote from a guy back in 1994.
Thanks for the pointer. I do have a couple of questions though:
Compliance Costs
Aren't the "compliance costs" entirely equal to labor cost (2.9 million people working 5.4 billion hours)? Not to suggest that we should preserve such jobs (I don't think we should) but to save the cost, you have to eliminate the jobs; not just from any particular company, but you eliminate that type of job from the entire economy. It seems to me (after growing up in a former mill town in Western Pennsylvania) that it can take a generation to eliminate the local effects of wiping out an industry ... even if it is good for the economy in general.
Disincentive Costs
Aren't disincentive costs really an accounting of the production that could have taken place had there been no negative incentives to hire additional labor or invest additional money? As such, isn't calling them a "cost" a bit misleading since eliminiation of this "cost" makes available no addition bottom line dollars? Isn't the positive effect of eliminating this cost called "growth." Isn't the stimulus aspect of tax policy accounted for in the the economic impact assessments of these various studies rather than in the cost accounting part of these studies?
Other Costs
Aren't these costs really a smattering of costs associated with audits, enforcement, tax-shelter overhead, and somesuch? Doesn't that make them really subcatagory of "compliance costs"? Do you have any studies that actually break out and differentiate that time spent by the accountant managing the Cayman Tax Shelter vs filing the quartly 10Q?
You might find these interesting:
A 1976 study in the Journal of Political Economy by Professor Edgar Browning found that the cost of taxes on labor was between 9 percent and 16 percent of each additional dollar collected.Given all this, the consensus seem to suggest a cost burden of far less than 65%, though the total economic burden (counting growth effects) are certainly higher ... but then growth stimuli are not costs in the cost accounting sense.A 1984 study by Professor Charles Stuart, published in the American Economic Review, found that the U.S. tax system as a whole costs 24.4 percent of each additional dollar collected.
A 1985 study by Charles Ballard, John Shoven and John Whalley, published in the National Tax Journal, estimated that economic distortions cost between 13 percent and 24 percent of revenue collected.
Another study that same year by the same economists, published in the American Economic Review, concluded that the cost of the U.S. tax system was between 15 percent and 50 percent of each additional dollar collected.
A 1987 study by Edgar Browning, published in the American Economic Review, found the cost of the U.S. tax system was between 31.8 percent and 46.9 percent of revenue.
A 1991 paper by Professors Dale Jorgenson and Kun-Young Yun in the Journal of Accounting, Auditing and Finance put the cost at 18 percent.
As with all these discussions, the devil is in the detail; it's not a question of whether such costs exist, it's a question of how big they really are, and much really flow directly into product pricing.