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Labor Market Reform

Prodos Worldwide on SolidVox has a 30 minute interview with Gerard Jackson about how economics and history refutes calls for state intervention in the labor market.

It has some important facts that are relevant to mid-term congressional election issues related to minimum wage increases proposed by Democrats and tax reductions proposed by some Republicans.

Mr. Jackson’s comments on how the depletion of capital leads to lower wages, which caused me to recognize how federal taxes attack capital accumulation. When it comes to Republican efforts to lower these taxes, they would benefit from instruction in valid arguments against these taxes by Mr. Jackson. Perhaps, if they were willing to be objectively correct, these congressman could be so bold as to eliminate the capital gains tax instead to hoping only to limit its damage by lowering that tax rate.

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  1. john

    On purely economic grounds, the elimination of the CGT is also problematic as it creates a distortion between different forms of savings. Dividends & interest continue to be taxed while capital gains isn’t. Of course, having a full income tax (that includes CGT) has the distortion of double-taxing savings. For efficiency purposes the better approach would be the abolition of all forms of income tax and the maintainence of a consumption tax.

    Of course, this assumes you want an efficient tax system. Being somebody with a passionate distaste for tax, I think there may be value in maintaining an inefficient tax system as they seem to be harder to increase the rate. I suggest turning Ramsey on it’s head and only taxing demand elastic goods with many subsitutes — like blue pens or red ties. 🙂

    I find it cute in a naive way that you think that Rebuplicans can be trusted on the issue of tax. The real measure of the size of government is government spending (as all spending has to be paid for at some stage)… and according to this measure, Bush is the most socialist President American has ever had — even on non-defence spending! The same applies to John Howard in Australia. Why do objectivists love these socialists so much?

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  2. Jim

    I am not concerned about granting capital gains a tax advantage compared to other forms of income. Unlike dividends and interest, capital gains have a natural cause of depletion, which is the risk of loss. Further, capital gains can be artificially increased because of the impact of inflation created by governmental monetary policy.

    In the context of the broadcast, capital gains tax cuts relate to the reinvestment of capital for corporate growth whereas dividends at least for that company indicate a position that inhibits increases to production from capital investment.

    In general, on fiscal policy, I am more concerned about spending reductions associated with returning to a properly limited form of government. Significant revenue reform can be followed by a successful effort of spending correction.

    Regarding my naÃ

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  3. john

    I don’t have a particular problem with having a CGT distortion either… but I would point out that dividends & interest also involve risk (as does all investment) and that they also are effected by inflation.

    Also, for ultimate efficiency the level and type of investment should not be influenced by (distortionary) tax rates. If there is a good investment to be made… it doesn’t matter if it’s financed through re-invested profits, new equity or new debt. Indeed, by biasing the system in favour of corporate re-investing (ergo against debt & equity financing), an economy would be likely to get the wrong mix of investments.

    I note that even if dividends are used for consumption and not investment, that is not necessarily bad. The whole point of the economic system is consumption, not production… and I strongly defend a person’s right to consume and save according to their own preferences.

    I agree government spending is more of a problem than tax. However, in the tradition of public choice theory I wonder if the only way to effectively reduce government spending is by “cutting their allowance”.

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