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?
Actually that more describes "oppertunity costs" more than disincentive costs.
Disincentive cost include the costs of alternatives chosen for their tax sheltering and avoidence as opposed to productivity improvements possible were resources applied to their most productive use without tax concerns, it is the choice of doing a thing to create a deduction to shelter income or minimize taxes rather than produce product.
A fair run down of what comprises Overhead costs as opposed to opportunity cost can be found here.
| http://www.taxfoundation.org/compliance2002.html |
Overhead Compliance CostsThe complexity generated by the growth and constant change of the tax code creates two general types of economic cost: overhead and opportunity cost. Overhead can be divided into three principal activities: the economically sterile exercises of tax planning, compliance, and litigation, all of which act like tax surcharges on taxpayers. *** snip ***
The Burden of Compliance CostsAs shown in , and , the Tax Foundation estimates that in 2002 individuals, businesses and non-profits spent over 5.7 billion hours complying with the federal income tax. Using an hourly cost of $29.98 for individuals and $37.26 for businesses and non-profits, the estimated cost of compliance in 2002 is $194 billion (See Methodology section for details about how the hours and wages were determined)—Individuals bear a cost of $86.1 billion, businesses bear a cost of $102.5 billion and non-profits bear a cost of $5.4 billion. Therefore, the overall compliance cost surcharge alone amounts to nearly 20.4 cents for every $1 collected by the federal income tax. |
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.
As far as your cites broader and more uptoday estimates exist beyond those you cite, for each study is highly dependant upon how much is included in the authors scope of his study and what is included into his determinations.
Payne is actually a more central figure among many.
http://www.heritage.org/Research/Taxes/hl565.cfm
An American Economic Review study found that every dollar of taxes could impose as much as $4 of lost output on the economy, with the probable harm ranging between $1.32 and $1.47
Edgar K. Browning, "On the Marginal Welfare Cost of Taxation," American Economic Review, Vol. 77, No. 1 (March 1987), pp. 11-23."Another study in the Journal of Political Economy estimated that the corporate income tax costs more in lost output than it raises for the government."
Jane G. Gravelle and Laurence J. Kotlikoff, "The Incidence and Efficiency Costs of Corporate Taxation When Corporate and Noncorporate Firms Produce the Same Good," Journal of Political Economy, Vol. 97, No. 4 (1989), pp. 749-780.
Killing the IRS, By Daniel J. Pilla, Reason Magazine July 1995
"There is little about a flat-tax system that will trim the staggering cost of tax law compliance. At present, this burden is estimated at $700 billion annually. Much of the cost is associated with recordkeeping and tax law enforcement, neither of which is reduced by a flat tax. A flat tax certainly involves a simpler tax return, but return preparation is the smallest component of tax law compliance.
The solution to our tax problem is to adopt a national retail sales tax in place of the personal and corporate income tax. Only a sales tax can eliminate the invasiveness of the IRS, since one's income and lifestyle are irrelevant."
Chief Executive, The New directions in tax reform -
May 1995.
Tax expert Ernest Christian Jr., a partner with Washington's Patton, Boggs & Blow, reckons these are low estimates or at best incomplete. Citing a U.S. Treasury study which indicates that 6 billion man-hours are consumed each year just in the record keeping for income and payroll tax returns alone, Christian says the true burden on the U.S. economy is probably closer to $1 trillion. For example, Jane Gravelle of the Congressional Research Service estimates that economic loss from the corporate income tax is equal to about 97 percent of the corporate tax revenue collected.
STATEMENT OF REPRESENTATIVE DICK ARMEY
HEARING ON THE IMPACT ON
INDIVIDUALS AND FAMILIES OF REPLACING THE FEDERAL INCOME TAX
Committee on Ways and Means, Full Committee, 4-15-97 TestimonyHinders Economic Opportunity
According to a study by Jane Gravelle, an economist with the Congressional Research Service, and Larry Kotlikoff, an economist at Boston University, the corporate income tax costs the economy more in lost production than it raises in revenue for the Treasury.
Dale Jorgenson, the chairman of the Economics Department at Harvard University, found that each extra dollar the government raises in revenue through the current system costs the economy $1.39.
Economic Burden of Taxation
William A. Niskanen
Presented October 2003
Friedman Conference
Federal Reserve Bank Dallas page 6.
www.dallasfed.org/news/research/2003/03ftc_niskanen.pdf"Given that the elasticity c implicit in recent U.S. fiscal conditions is about 0.8 and the average tax rate is about 0.3, the marginal cost of government spending and taxes in the United States may be about $2.75 per additional dollar of tax revenue. One wonders whether there are any government programs for which the marginal value is that high. Given the estimate of the long-term elasticity c from the U.S. time-series data, the marginal cost of government spending and taxes may be as high as $4.50 at the current average tax rate. "
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.
And also highly dependant upon by whom and when any particular study was done, and the root purpose of the study. Which is why Payne's number is useful, because it is a compliation of the results of many economic studies by manny different researchers not just one source.
That's not what your source said:
Tax disincentive costs: the loss of production because of the discouraging effect of taxes on investment and labor. In recent years, a number of economists have made calculations of this "excess burden" for a wide variety of taxes. In a 1985 article in the American Economic Review, Michigan State economist Charles Ballard and his colleagues estimate that for each additional dollar in taxes collected the economy loses 33.2 cents of production.Costs of tax enforcement: resources expended in responding to the tax authority. Each act of tax enforcement--each audit, each notice, each levy--entails a burden for the citizen subject to it. Since these actions run into many millions every year, the time and expense for citizens is significant. Tax avoidance-- setting up shelters, using loopholes, litigation--entails further costs. My calculation of the enforcement and avoidance costs comes to 8 percent of tax revenue.
And, secondly, someting doesn't add up: If everybody (individual, businesses and non-profits) spend $194 Billion on compliance surcharges, as your post directly says, to collect $2,000 Billion tax dollars, then it looks to me like we only spend 9.7 cents for every dollar of tax collected (not 20.4 cents)
And out of that, the $86.1 Billion of that borne by individuals is not available to businesses to reduce prices. That leaves somewhere between $102 Billion and $108 Billion (depending on what percentage of the non-profits are commercial) available for cost reduction.
Again, that's a far cry from even the $250 Billion that most don't quibble about; it's light-years away from $662 Billion!
I guess I could say the same about yours; you're the one who trotted out a 1994 magazine article referencing a 1985 study suggesting the costs of the tax system are over 65% of tax revenue.
Are you implying that your source is invalid because it's dated?
Not a penny of "lost opportunity" cost will flow directly into price reductions.
So, far everything you've cited suggests that the amount of money available for cost reduction is between $100 Billion and $250 Billion. All the rest is growth potential, which is not bad, it's just not cost. And it won't directly flow into price reductions.
But according to you, there are
"more uptoday estimates exist beyond those you cite"
After all Payne's biggest number comes from a 1985 study on lost opportunity, not direct cost.
I gave you 6 different references and only one is older than yours. Why the mention of a single source?