How Economists Evaluate Tariffs Versus Income Taxes
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- Опубликовано: 7 сен 2024
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Prompted by a listener request, Bob gives the standard economic analysis of tariffs and other types of taxes. This is relevant because the populist Right is arguing for a hike in tariffs to fund income tax cuts.
Bob's Article, "Carbon Taxes and the 'Tax Interaction Effect'": Mises.org/HAP458a
Trump-Biden Tariff Tracker: Mises.org/HAP458b
Bob and Dave Smith on Open Borders: Mises.org/HAP458c
Frédéric Bastiat's Candlestick Makers' Petition: Mises.org/HAP458d
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Yes Tariffs are bad. Got it. How about open borders? I have a deep distain for Yaron Brook, and he says open borders are good for the economy. Is that true??? He also just said the CPI overstates inflation.
Open borders would be good in theory if we didn't live in a taxation based system. Because under true private property, it wouldn't matter where people moved. In that sense, open borders would be phenomenal for the economy because of unrestricted flow of free market talent. Unfortunately, we are forced to pay for each other which means that if more people come in, they'll be later to pay for but receive stuff first.
@zg-it There are better, non-monetary reasons for having clearly defined borders. Leftist libertarians don’t care about crime, sovereignty, or the electoral process. As long as foreigners come in and vote in a way conducive to the progressive movement, economic growth becomes a secondary priority
@@michaelthomas6280 property has borders. National borders are just arbitrary territories divided up for the parasites to extort and cartalize.
Go read Brian Caplan's arguments on open borders.
@durden0 Everyone here has considered his arguments. The fact remains that the left in this country feeds off mass migration, and the economic dimension of open borders in an otherwise neutral world becomes meaningless. You can take the moral position that we’re all equal and might as well be a melting pot with mutual benefits, but you can also tell - even by the inflection of Caplan’s voice - what sort of agenda he is pursuing
Thanks, Bob.
The fed need to get their money the way the constitution says to get it.
Bob please cover Argentina! We are witnessing Austrian economics being applied in real time with president Melei!!
Great video. I loved how you broke down supply & demand elasticity & how many parties can bear the costs of a tax, even if it's only levied on one party.
Very beautiful episode, this one.
Why do you say only a small percentage of goods is imported? Nearly everything I buy is made in China.
A lot of the stuff Americans buy is from China. The notable exception is cars because Chinese automakers haven't yet started selling to the U.S. It will happen, with or without tariffs. And Americans are entitled to buy from wherever they want without being taxed.
@@MBarberfan4life I've heard the only reason China isn't selling cars here is due to protectionist laws.
U.S. GDP is about $25 trillion per year. Of that, $3 trillion is spent on imports. That’s only 12% of total expenditure.
You spend money on a lot more things than just stuff from China: restaurants, housing, repair services, haircuts, movies, college, Netflix, home internet, cell phone services, banking, insurance, doctor visits, water, electricity, etc.
Then there’s businesses, which spend big on digital and physical advertising, construction, business consultants, and other professional services.
The U.S. economy is huge and mostly domestic.
@@ashnavabi GDP is a flawed metric. First you need to take away government spending, which is a large percentage. Next you need to take away unproductive services, and add intermediate production. This is why I'm talking about goods, not GDP or services,
@@ctrlaltdebug Protectionist tariffs. Yes.
Therefore in the end the best policy is to have no taxes and no tariffs. All state intervention in the markets lead to deadweight loss and less productivity.
A bit rambling but still a good explanation of how to consider the tradeoffs.
Yes, prices adjust in response to changes in costs (including tax costs). This also applies to labor markets and income taxes. Progressive income taxes actually (and ironically) tend to increase the " gross income disparity" between high and low income earners.
For example, an executive being transferred from Scranton to NYC will get a "cost of living" increase to cover the higher costs and taxes in NYC. Likewise, any executive getting a promotion into a higher tax bracket will bargain for a higher than otherwise raise. Meanwhile those in low or zero tax brackets will undercut each other to get the job because their taxes are lower.
I'm dubious of your claim that people are going to be happy to earn less if they also get to pay less tax to the government...
@@willnitschke it's not actually a matter of happy. Prices for labor will automatically adjust through supply and demand to reflect costs incurred just like all costs and prices.
@@2DXYSU But that's not the claim you made I'm objecting to.
Here’s a question for the next show. If they have cruelty-free, not tested on animals, dolphin-safe, etc. stickers on products, why not do the same thing for people?
I just noticed advertising on this channel, good call it helps RUclips promote you. Not sure when they started.
Corporate taxes are a cost like any other. They are always paid by the consumer because they are worked into the cost/profit equation.
It's a cost like any other. And costs don't determine the price of a product. What consumers are willing to spend determines the price, and the producer has to figure out how to keep their costs below the sale price in order to make a profit. If businesses could simply pass their increased costs on to the consumer, nobody would ever go out of business.
@troll_kin9456
You don't seem to be paying attention to reality.
Which reality is the one where nobody goes out of business because they can just offset their costs by raising prices without a dropoff in sales?
@troll_kin9456 pricess are going up now because costs are going up. The consumer can buy something else but most business cannot sell at a loss and survive. The market says the price and the consumer responds by making decisions on what to buy.
All costs and profits are born by the consumer. Once the profit gets too low the business closes and the consumer has no choice but to buy from a different business at a higher or lower price.
@@batmanacw All true, but it doesn't = corporate taxes are always paid by the consumer. Sometimes they are, if the market will bear it. Sometimes - as you say - the consumers will buy something else. Corporations have a margin. They can bear an increase in costs within that margin without operating at a loss. And sometimes the demand for their product is elastic enough that they can't raise prices and have to just take the loss to their margins.
If a new restaurant tax of $2,000,000 per year were suddenly implemented, I wouldn't pay my share of the $2,000,000 for a steak. I would just stop going out to eat.
a pallet sized machine that makes work and costs money... its like a tiny government right there on your truck just clinging like a barnacle. or even a dingleberry!
I see the point about "who bears the cost" depending on supply/demand elasticity. Still, I can't help but think that from a moral perspective, the one at risk of going to jail is the one being taxed, and is the one who deserves the restitution.
This issue has been settled by professional economists: tariffs are an awful idea. Recently, some politicians have been engaging in populist-nonsensical economic rhetoric. Although, it is more than rhetoric because tariffs have been imposed over the past couple of administrations.
Although, I have, for example, met plenty of Trump fans who are (rightfully) perplexed by Trump's stance on tariffs. Same with Biden supporters.
Also, most voters aren't against "free trade" itself, depending on what you mean by "free trade". Because it is a term that has become quite ambiguous.
Does free trade mean buying from totalitarian producers because they treat their workers poorly, and enslave their populations?
I have an idea how about the government just spend less money and decrease income tax and tariffs. There I solved it.
Both are better than the democrats wanting to tax unrealized capital gains.
Anything is better than that mindbogglingly idiotic idea.
Or the supreme court that recently opened the door to it!
The Supreme Court has been great on a lot the last few years. Not worth opposing them with way bigger threats in power.
Democrats also plan to tax muni bond interest income. Local municipalities and states must love the idea of higher interest costs.
@@agbookHow did they do this?
if you include a transcription to this video, I can have an AI agent give me a TL;DR summary that compares the main points of taxes vs tariffs. no offense, but... isn't there a list with maybe 20 bullet points that can touch on the main points? :-D
I found the example of the poll tax illustrative. The inescapable demand of a head tax would be an unacceptable burden in terms of liberty. The example of the clerk paying the tobacco tax vs. the producer was similar. The increased number of transactions and reporting would be an additional cost. Both of these would apply to the comparison of income taxes vs. tariffs. Seems like Bob ran out of time.
Protectionist tariffs are a bad idea of course, but a federal government funded SOLELY by a REVENUE tariff, in lieu of an income tax isn't. The problem with an income tax is that its insanely effective at actually raising revenue and compels you to report to the government the minutiae of your economic life which, while obviously constitutional, violates the spirit of the IV Amendment. Unqualified use of free trade obvious means international trade, but from my point of view I'm worried about free trade with everybody, foreign AND domestic and income taxes restrict my ability to trade far more than a revenue tariff ever could. In Federalist 51 Madison opined "If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself." And tariffs do that, they oblige the government to control itself because to get revenue the federal government would NEED imports actually and the tax would be insufficient to fund big government.
Nothing is "of course" in economics. If country A raises a tariff on your exports and you raise a tariff on country A's imports, that is not necessarily a bad idea. What you've done is restored equilibrium.
Wouldb't a flat poll tax distort work and leisure towards work?
No, a poll tax is a tax on breathing and only would discourage procreation.
Taxation is theft. Not necessarily. If society agrees to have basic rules such as private propert, no stealing, no killing, no damaging others property...then those that have discovered something of vital human importance have the system to owe for that ability to discover such thing. If they had to worry about killing, stealing, etc then that discovery likely would not have been found. The question is to what degree is owed to society? This would depend on the availabilty and importance of the discovery. The discovey of antibiotics. Should the inventor have 100% full rights to the antibiotic or any other types that come about? How should such discoveries be priced? Is there enough for all people in any amount? So to make a blanket statement of taxation is theft seems incorrect and reckless. Should all information be free but the work and resources be market based? Should there be a limit on the amount of raw resources that a small group of people can own?
It would be great if you can do a video with a thorough analysis
Being grateful for your society is one thing, but nobody owes it. Excepting charity, which is freely given and explicitly not a debt that you owe, you clear your debt for every other service when you pay for it. Justifying taxes by pointing to tax-payer funded services is circular.
I don't believe intellectual property is legitimate, but assuming your society did, enforcement of that right would be no different than the enforcement of any other right. You pay the legal fees to have your complaint adjudicated and for the physical enforcement of the decision if you win. The victim presumably owes some damages - maybe they would have to reimburse your legal fees as well depending on the minutia of the law. All debts are discharged when you pay for the service.
Anyway, it's not like the state upholds your rights for free, in exchange for collecting taxes. It taxes you, AND charges you so much for justice that it's basically the most expensive thing in the entire economy and completely out of reach of the average individual. And this is true for virtually every vital service. You pay bridge tolls, you pay for your vehicle registration, you pay court fees, you pay withholding for social security, and unemployment, you pay to bring stuff to the dump, you pay for a property reassessment, you pay for a business license, etc., etc. - all of this on top of the taxes you owe. This idea that taxes are like some subscription service is nothing but a civic myth. Taxes are theft plain and simple.
*If society agrees...*
That's where your argument immediately blew up. Abstract concepts can't agree on anything.
The bottom line is, the smaller the gross tax the better.
⛽️⛽️⛽️
Contrary to the rhetoric espoused by the compassionate left & the freedom-seeking libertarian movement, immigration is a complex issue.
In terms of the economy, the increased productivity, an expanded labor force & increased quantity of entrepreneurs brings, drives incomes upwards in real terms. Although, the increased demand brought by immigrants consuming largely offsets this. Still, like all trade, the only way for an immigrant to exist in a free society is to provide more value to others than they accrue. Within a free market, they're on-net benefactors to society. Not to mention, they (like all people) deserve the opportunity to make a better life for themselves through hard work.
That said, there are some notable problems with immigration politically.
The only reason an immigrant migrates to begin with is because (for some reason or another) they value the country they're going to more than staying in their own. That's a matter of revealed preference & is thus an a prior fact. Still, most immigrants don't give up their customs & beliefs upon migrating. This necessarily conflicts (to some varying degree) with the natives' beliefs - which have built the very system that made their country attractive to foreigners. With this in mind, if immigrants are granted equal say in the political structure within their new country, they'll often vote for the very policies that made them seek to leave their nation to begin with.
So, although immigration is great *within a free market,* unless they're excluded to some extent from having say in the country's direction, said country is more prone to moving away from the system that made their country appealing to begin with. My remedy would be to prevent immigrants from having voting rights until they've lived here for a meaningful period of time, have gone through a detailed process of integration, & have a vested financial stake in this nation & its direction.
The other problem, most notably seen in europe, is the issue of crime & conflicting cultures. The arab-born population has a significantly higher propensity of violating the rule of law; including higher rates of theft, bombing, assult, rape, & murder. Simply arresting these criminals is not only draining on the natives who pay into the system, but (as they become a larger portion of the population) they hold greater positions of power, such that the system tends towards becoming more biased in their direction. Not to mention, the measures needed to stop such widescale violence tend to undermine freedom of movement, speech, privacy, etc.
Barring such criminals from society is a must if you intend to maintain a system of private ownership, free trade, low violent crime, & free movement.
Strictly speaking the larger pool of labour will drive down wages, actually.
@willnitschke *Numerically,* yes, since more people compete for an (ideally) scarce quantity of money.
In *real terms* (within a free market), no, since the only way someone can earn money is by producing more value than what they accrue in profit. This includes immigrants.
Hence why we experienced persistent deflationary growth during the industrial revolution, with growing incomes in real terms, even while the population multiplied every decade.
@@austinbyrd4164 Yes it's mathematical, versus what else? Feelings?
Supply and demand for goods and services and labor will equilibriate over long time periods. But over longer time periods we're also all dead. So what happens right now is the larger labour pool drives down wages. There are pro's and con's to that happening.
@willnitschke Wages are only driven down in so far as there's more people earning scarce money. How do they earn it? By supplying more value than they obtain. They contribute to the production of goods & services people demand. They consume in direct proportion to their respective contributions to productivity.
Immigrants drive up incomes in real terms with their productive contributions via a greater division of labor, more employees, more *employers,* & more investment from abroad.
That said, their consumption of said produce offsets this, but they're still a net positive economically speaking within a free market.
@willnitschke You don't know the difference between numerical & real wage growth? This is basic economics lol.
Would you rather go from earning
$100 to...
1. $110, but prices go up 20%?
or
2. $90 & prices fall 20%?
Obviously, option 2.
Although you earn less dollar bills, that's irrelevant. What truly matters is productivity driving down prices & increasing incomes in real terms.
Tax negative externalities, like pollution. Tax land as it's something that's not created by people. Tax all common good extractions like mining, oil/gas drilling, cutting natural/old growth trees, fishing/hunting/gathering.
Taxation is theft
1.5 speed was too slow for this video.
I wasn't too slow for your mom last night.
try 1.75
This is rambling. Please clean up presentation.
:D
9:34 this entire analysis is just plain wrong. When Ethiopia went through its famine we gave them food for free and what happened? The farmers stopped farming because no one would buy their goods because food was free. Individual freedom is reduced when our country is less self sufficient. Tarrifs allow room for American companies to turn a profit on things that would otherwise be done outside the US. It makes good strategic sense even if it does have an economic effect
You are not pursuing your analysis further enough, yes if large quantities of a given good are "dumped" in a national market by a foreign country, this would, other things being equal, harm national industries producing that good and would lead to a shift of resources (labour, machines etc.) away from this line of production. The important observation is that those resources are now available in larger quantities to other production/industry sectors which leads to more production of other goods, lower prices and more prosperity. This is the "free trade makes us richer" part. Now yes, once the foreign products are no longer being "dumped", a shift of resources in the opposite direction (market reallocation)will need to take place and it will, I grant you, be more inefficient for the given good than in the alternative setting in which the government would have prevented the resources shift by the use of tariffs. The core of the argument is that this necessary market reallocation is significantly less damaging to the national economy compared to the loss of the potential prosperity that would have ensued in a free trade setting.
Sorry for the long response
@@unsophisticatedlayman9995 better a long response than an idiotic one. However your conclusion seems to be pure speculation. You can have a high flying economy held up by tissue paper. Or a stable economy that can weather any storm. Economic transactions don't occur in a vacuum away from political upheaval. Just ask anyone that was heavily invested in Russia before the war started.
@@rexmann1984 I agree, I was trying to flush out the argument for free trade in an idealistic setting to state the tradeoff that is taking place. I do agree that our political/legal structure e.g labor union laws, taxes/regulations imposed on national producers which hurt their efficiency, unemployment compensation etc. will greatly hamper such a shift of resources or are largely to blame for our producers inability to compete with foreign goods. But then I would argue for the removal of these hurdles rather than tariffs.
The piece of the puzzle you're missing is that African economies are almost all socialist, with private enterprise being heavily restricted and regulated to a point where business rarely occurs without bribing officials.
This reduces the elasticity of their markets, freed up labour can no longer be efficiently put to different ends and those whose only recourse is farming will be destitute.
Problems like this can only be analysed wholistically, dumping cheap goods on an economy will only really hurt restricted markets, a free market will simply produce something else.
I am sad that Bob skimmed over the strategy gins for strategic tartofs like medicine and computer chips
I get it. "We love free trade, and we don't care if our citizens have no jobs and cannot afford to buy anything." "Professional economists" are KPI optimizers that don't care about regular people for the most part. Currently playing out in realtime.
The main point of his argument was that free trade lowers cost of living, hence benefits regular citizens.
@@willnitschke Yup, and completely ignores that eventually most people don't have jobs and thus can't afford anything. Note that this is occurring RIGHT NOW, so we have an existence proof of the idiocy of free trade, and demonstrates that "professional economists" are really cultists who cannot accept that reality is absolutely different from their pure models. But it is a "termite problem", in that it takes a while for the actual damage to appear, so they get to play the game of "that wasn't the cause because obviously MY theory is absolutely correct", rather than a "hot stove" problem.
You’re right, global wealth is greater with free trade. But millions of American workers are worse off. The benefits are disproportionately spread across society.
@@edmunddengler7687dude, there's a lot of jobs. Midwest problems do not reflect American problems outside these areas.
@@AustrianDuration Ah yes, all those people who lost higher paying jobs to take lower paying, and all those people who are struggling to get a job at all. Yup, no evidence at all about this issue. So many jobs that the definition of unemployment rate was changed. Yup, no evidence at all. Just like those "expert economists" who will run a country into the ground, and then claim "not our fault". Dude, maybe you are not seeing issues. Maybe you should talk to more people? How about all those fast food joints in California being shutdown due to "expert economists"? John Deere moving to Mexico? The car manufacturers? Free trade is a cult that may bring in short term gains, but that is like getting credit cards and spending your way for the short term. The reality is that making things, growing food, resources extraction are the basis of all economies. Finance, legal, etc, etc are secondary that depends on the primary. And when the primary goes, eventually the rest goes as well.
Youre not doing a full accounting of the costs. Yes we got computer chips cheaper. But at what cost? We lost all of the institutional and human capital needed to produce a necessity of modern life. So now the world turns on this island off the coast of China because we wanted cheaper stuff.
If this was a real concern, the political will would exist to deregulate - even if just for that industry - to help it become competitive domestically. The fact that no such will exists means nobody really believes this is a problem, and the government is just stoking fear to grab more of your money.
@@troll_kin9456 severity of problem does not correlate with political will to solve the problem. I offer the federal reserve as example A.
@@bentuovila5296 For the regime, the Federal Reserve is a feature - not a bug. But here, the argument is that microchips in Taiwan is a problem for the regime whose military advantage relies on it. There's an easy solution that they're not implementing, so chances are they don't actually believe this is a problem; they just want you to.
@@troll_kin9456 another possibility is they miscalculated as it's a risk that was underestimate decades ago when the plan was put into action.
Whole you might be able to debate the example my main point that all costs, especially long term, are not taken into account by price signals stands.
@@bentuovila5296 Miscalculations certainly happen. For example, ordinary people who believe tariffs are in their best interest.