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Author Topic: How the income tax subsidizes the displacement of workers  (Read 565 times)
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Rockingham
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« on: June 09, 2012, 08:22:09 pm »
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Their has been much bellyaching over the tax credits within the income tax, on account of their distortion of incentives and substantial contribution to the deficit problem.

Their is however one colossal tax credit that has gone almost completely unmentioned- the tax credit for machines. A company pays payroll tax on all its human labour and income tax on most of them... but if that same company replaces some of its human labour with mechanical labour, the income and payroll taxes are out of the picture.

I have problem with mechanization when that is the most efficient method of doing something... but the present defacto tax credit for mechanization means businesses often mechanize production/services when that is not the most efficient method(ceteris parabus)

Particularly given the present concerns over the unemployment rates worldwide, I advocate that some method of eliminating this defacto subsidy. Perhaps abolishing taxes on human employment(the income and payroll tax) and collecting the lost revenue through the corporate income tax.
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« Reply #1 on: June 09, 2012, 11:50:02 pm »
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I'm not sure if payroll taxes are the impetus for increasing productivity.
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shua
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« Reply #2 on: June 10, 2012, 01:04:20 pm »
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I think you have a point, at least when it comes to the payroll tax. It's not going to be the main factor behind a decision to downsize employees, but it can make a difference at the margins. The employee income tax is more questionable in its effects, since (AFAIK) companies don't pay that directly.  It does mean that employees have to get paid more for them to be at the same level of after-tax income. Does that make a difference? I'd guess somewhat but I'm not sure. It's less clearly a disincentive for employment than things like health insurance mandates or a high minimum wage.
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Torie
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« Reply #3 on: June 10, 2012, 06:40:17 pm »
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I don't think there is a tax credit. It is just that you can expense rather than depreciate over time capital expenditures for machinery (so the income tax paid will be paid, it is just deferred). The payroll tax is to fund SS, and goes back to the worker. I don't view that as a cost. Lower income workers also get an earned income tax credit, which itself creates a bias in favor of using labor, rather than capital expenditures. In sum, I don't think the tax code has much of an impact here overall net.
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« Reply #4 on: June 10, 2012, 06:56:10 pm »
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You have companies like Verizon that have laid off a ton of people, and have huge amounts of cash on hand. Or hedge funds that have a huge amount of worth per employee. It's pretty obvious that tax cuts aren't going to make these companies employ any more people. Tax cuts for hedge funds and Verizon is clearly detrimental to the economy.
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Rockingham
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« Reply #5 on: June 11, 2012, 02:29:59 am »
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The employee income tax is more questionable in its effects, since (AFAIK) companies don't pay that directly.  It does mean that employees have to get paid more for them to be at the same level of after-tax income. Does that make a difference? I'd guess somewhat but I'm not sure. It's less clearly a disincentive for employment than things like health insurance mandates or a high minimum wage.
It's a cornerstone principle of economics that taxes don't stay where you put them...ie whether it paid by the employer or employee makes no difference(except perhaps pyschologically, and in terms of reduced accounting costs).

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Rockingham
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« Reply #6 on: June 11, 2012, 02:54:15 am »
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You have companies like Verizon that have laid off a ton of people, and have huge amounts of cash on hand. Or hedge funds that have a huge amount of worth per employee. It's pretty obvious that tax cuts aren't going to make these companies employ any more people. Tax cuts for hedge funds and Verizon is clearly detrimental to the economy.
I don't think you understood my post, but you've more or less proven my point. Some companies(such as hedgefunds) have much fewer employees per dollar of revenue. The income tax is far less of a burden on them then it is on companies with a large number of employees per dollar of revenue.

This constitutes an enormous distortion in the economy, redistributing growth towards corporation with fewer employees per dollar of revenue(therefore lessening the number of jobs created by a given quantity of growth)... as well as causing mechanization to profitable for many corporations where it wouldn't have been profitable without the distortion.

The best way of ridding ourselves of this distortion is to gather the income tax revenue through a general corporate tax instead. This would not constitute a tax cut, so long as the corporate tax rate was set at a percentage where the revenue remained identical
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opebo
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« Reply #7 on: June 11, 2012, 05:32:08 am »
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I'm not sure if payroll taxes are the impetus for increasing productivity.

The cost of labour is the impetus for increasing productivity, and the cost of labour is invariably subsistence+government enforced costs (such as unionization, worker safety requirements, and taxation). 
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Torie
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« Reply #8 on: June 11, 2012, 09:21:01 am »
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and the cost of labour is invariably subsistence

For some reason, I never got that memo. Tongue
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« Reply #9 on: June 11, 2012, 09:57:20 am »
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and the cost of labour is invariably subsistence

For some reason, I never got that memo. Tongue

Speaking generally, Torie.  The vast majority of workers in the US are vouchsafed between twenty and sixty thousand per year - subsistence.
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Torie
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« Reply #10 on: June 11, 2012, 08:21:13 pm »
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and the cost of labour is invariably subsistence

For some reason, I never got that memo. Tongue

Speaking generally, Torie.  The vast majority of workers in the US are vouchsafed between twenty and sixty thousand per year - subsistence.

Well at least I watered you down from "invariably" to "generally."  One step at a time!
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opebo
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« Reply #11 on: June 12, 2012, 06:16:38 am »
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Speaking generally, Torie.  The vast majority of workers in the US are vouchsafed between twenty and sixty thousand per year - subsistence.

Well at least I watered you down from "invariably" to "generally."  One step at a time!

Exceptional cases are never what one should base social policy upon, are they Torie?
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shua
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« Reply #12 on: June 15, 2012, 04:34:46 pm »
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The employee income tax is more questionable in its effects, since (AFAIK) companies don't pay that directly.  It does mean that employees have to get paid more for them to be at the same level of after-tax income. Does that make a difference? I'd guess somewhat but I'm not sure. It's less clearly a disincentive for employment than things like health insurance mandates or a high minimum wage.
It's a cornerstone principle of economics that taxes don't stay where you put them...ie whether it paid by the employer or employee makes no difference(except perhaps pyschologically, and in terms of reduced accounting costs).


If you tax an employer, the tax gets passed on in part to the employees. I don't see why it would necessarily work the other way around.
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Gustaf
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« Reply #13 on: June 16, 2012, 08:55:08 pm »
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The employee income tax is more questionable in its effects, since (AFAIK) companies don't pay that directly.  It does mean that employees have to get paid more for them to be at the same level of after-tax income. Does that make a difference? I'd guess somewhat but I'm not sure. It's less clearly a disincentive for employment than things like health insurance mandates or a high minimum wage.
It's a cornerstone principle of economics that taxes don't stay where you put them...ie whether it paid by the employer or employee makes no difference(except perhaps pyschologically, and in terms of reduced accounting costs).


If you tax an employer, the tax gets passed on in part to the employees. I don't see why it would necessarily work the other way around.

People have reservation wages. Payroll taxes and income taxes are both merely differences between what employers pay out and what employees get.
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« Reply #14 on: June 18, 2012, 01:27:59 pm »
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Their has been much bellyaching over the tax credits within the income tax, on account of their distortion of incentives and substantial contribution to the deficit problem.

Their is however one colossal tax credit that has gone almost completely unmentioned- the tax credit for machines. A company pays payroll tax on all its human labour and income tax on most of them... but if that same company replaces some of its human labour with mechanical labour, the income and payroll taxes are out of the picture.

I have problem with mechanization when that is the most efficient method of doing something... but the present defacto tax credit for mechanization means businesses often mechanize production/services when that is not the most efficient method(ceteris parabus)

Particularly given the present concerns over the unemployment rates worldwide, I advocate that some method of eliminating this defacto subsidy. Perhaps abolishing taxes on human employment(the income and payroll tax) and collecting the lost revenue through the corporate income tax.

Where I live businesses pay sales tax on machines they use in their factories and often times those machines have various import duties/tariffs built into their price.  Slavery was abolished here in America.  We no longer buy and sell people and employers don't have to pay sales taxes on employees.
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