Taxation VS Inflation

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dude6935 Posted: Tue, Nov 27 2012 5:18 PM

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Assuming that the federal government is going to spend money, isn't it preferable to fund that spending through taxation rather than inflation? We are paying for that spending regardless. Shouldn't we prefer honesty about the cost of the state rather than suffer the hidden cost imposed by the Fed?

Rand Paul is fighting against tax increases in the Senate. And I agree with him generally. But IF tax increases could be matched by spending reduction, wouldn't we all be better off? Isn't spending the root of the problem, not taxation (in the traditional sense)?

Should we expect the inefficiencies of one route to be greater than the other?

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Minarchist replied on Tue, Nov 27 2012 5:20 PM

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I understand your point, but as a matter of strategy I don't think we should favor tax increases under any circumstances. The only reason anyone is discussing spending cuts in the mainstream is because of growing fear over the deficit. If the deficits shrinks thanks to tax increases, that will greatly reduce the interest in cutting spending.

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Prime replied on Tue, Nov 27 2012 8:12 PM

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I'm starting to actually favor inflation (though this may be a selfish motive). I've determined that if one has the means and knowledge to hedge against the inflation, then that may be the better option. I view inflation as making those that wish to live off the welfare state at least pay for themselves through higher prices.

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DD5 replied on Wed, Nov 28 2012 7:35 AM

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Prime:

I view inflation as making those that wish to live off the welfare state at least pay for themselves through higher prices.

Yes, the banking industry, the industrial military complex, and the fat government bureacracy are at least paying for themselves.

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Bogart replied on Wed, Nov 28 2012 8:01 AM

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NO! ABSOLUTELY NOT, NEVER SUPPORT TAX IINCREASES IN A DEMOCRACY!!!!!

The reasoning is simple:  A democracy, rule by a mob, exists on the idea that it can steal from a minority and give the goodies to a majority.  The problem is that other than the wealthy and powerful who have the most resources to protect their own property, there is no other minority capable of supporting the majority.  So the democracy will ALWAYS find the minority that can not fight back which is those yet to be born and those too young to vote.  But even here there are problems once the democracy accumulates too much debt that it can not find people to buy its bonds.  So it then raises taxes and uses this new money as collateral to take on more loans.

As for efficiency, it does not matter.  There is no efficient way to steal.  All mechanisms have unseen effects and end up growing government through debt.

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Prime replied on Wed, Nov 28 2012 9:17 AM

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DD5:

Yes, the banking industry, the industrial military complex, and the fat government bureacracy are at least paying for themselves.

Those institutions are going to exist regardless of whether they are directly funded through taxation or funded via inflation. If you give  me a choice to be taxed to pay for them, or pay for them through  a decrease in puchasing power, I will choose the latter because I can shield myself from said decrease in purchasing power. However, I cannot avoid paying taxes (at least for very long).

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dude6935 replied on Wed, Nov 28 2012 10:21 AM

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I'm not sure you can avoid the effects of inflation unless you just don't hold any dollars. I would like to hear how this can be done, because I am a bit skeptical.

Bogart, the US isn't a democracy. 

With regard to efficiency, there are methods of taxation which are more destructive than others. I don't support a land value tax, but I would prefer it over a tax on anything else because I see it as the least destructive.


 

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Bogart replied on Wed, Nov 28 2012 12:27 PM

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The USA is more of a democracy now than it has been at any time in its history.  Certainly not letting women and other minorities vote would be undemocratic.  There was also the direct election of US Senators that mucked the whole government up as well.

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Jon Irenicus replied on Wed, Nov 28 2012 12:31 PM

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In at least some ways, it is a democracy, especially when it comes to allowing citizens to vote themselves OPM.

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DD5 replied on Wed, Nov 28 2012 1:08 PM

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Prime:

those institutions are going to exist regardless of whether they are directly funded through taxation or funded via inflation.

No, actually the modern instituion of central banking wouldn't exist and that's pretty much the soruce for any modern warfare and welfare State.  

You are also fooing yourself if you think you can absolutely shield yourself from inflation.  You can also lose a lot of money in the process.

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Anenome replied on Wed, Nov 28 2012 1:58 PM

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dude6935:

I'm not sure you can avoid the effects of inflation unless you just don't hold any dollars. I would like to hear how this can be done, because I am a bit skeptical.

DD5:

You are also fooing yourself if you think you can absolutely shield yourself from inflation.  You can also lose a lot of money in the process.

Couldn't you just deal in commodities? There'd be strong incentive to create parallel commodity-moneys by private parties issuing credit certificates for commodities for one-off deals and the like. Plus, any large inflation will give bitcoin a huge boost.

Ultimately I think the world's mixed economies will falter under massive inflation due to continually shunting debt onto the next generation.

TPTB figured this would be fine, they could always default or w/e, deal with it when it happens. But they never thought something like Bitcoin might exist.

I love how technology foils the plans of the would-be global planners.

I think they'd love to engineer worldwide economic chaos in order to push through something like a world government, to cast the UN or w/e as the economic savior. All they need, they think, is a great depression-like event and a monetary solution that can only work if implemented by an authority with transnational power. With that, they can establish a world-government.

But if we libertarians build parallel structures that actually work, their driving their own economies towards ruin may end up actually driving the masses to our working institutions! Completely foiling their scenarios for increased power.

It all rests on this historical epoch right now. Time is precious. We've got to get libertarian solutions up and running before they can establish a one-world governemnt. We can't sit back on theory anymore and wait for the education strategy to work.

I favor the parallel strategy, building working libertarian solutions to the problems people demand government to solve in seasteads and on the net. Bitcoin is a good example of a parallel net-based libertarian solution. Being on the net, it's trans-border. And being crypto, it's completely decentralized with no governing authority. Awesome.

Now how can we similarly transborder and net-ify dispute resolution, law, and policing?

Dispute resolution is pretty easy and basically done already: see www.Judge.me

As for law, there are people working on computational law and the like... :)

And policing? How about drones, perhaps? The internet of things? If every item had a unique identifier and a net-presence, we could run title to them as an international database, making theft nearly impossible, for you'd have a complete title history of every object.

Then we need an area to put them all toether and lead the way, which is what I see seasteads achieving.

...and here I've gone waaay off topic :)

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idol replied on Wed, Nov 28 2012 2:08 PM

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Gold standard + no tax increases. Problem solved.

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dude6935 replied on Wed, Nov 28 2012 2:58 PM

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@DD5

The whole premise of the original post is that the federal government will continue to spend money. Given that assumption, what funding mechanism should we prefer: taxation or inflation?

This daily makes half of my point. http://mises.org/daily/6185/Is-the-Fiscal-Cliff-a-Threat-to-the-Economy

All that matters is government spending. A simple tax increase is okay if it leads to a deal that actually cuts spending.

But from a strategy standpoint, wouldn't it be better if people could see the taxes they pay. Then they would better understand what state services actually cost.

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DD5 replied on Wed, Nov 28 2012 3:19 PM

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@dude6935

I agree, direct taxation is certainly the lesser of two evils, however, I don't agree that direct taxation should ever be advocated for in order to reduce inflation. 

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Anenome replied on Wed, Nov 28 2012 3:53 PM

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dude6935:

All that matters is government spending. A simple tax increase is okay if it leads to a deal that actually cuts spending.

No. As libertarians whom believe taxation inherently immoral, we should never, ever agree to a tax increase. Even if spending doesn't get cut. Because we're also completely okay with a government default on their debt, in fact that could very well help our cause as well as boost things like agorism and alternative currencies, ala Bitcoin.

No tax increase is okay.

Yes they should cut taxes, and yes they should cut spending--but they should cut both to zero.

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idol replied on Wed, Nov 28 2012 8:55 PM

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This government, so long as it's made up of Democrats and Republicans, will never seriously cut spending. The over-hyped fiscal cliff, which would cut spending by a pathetic 100 billion, has been treated like a horrible financial crisis waiting to happen, comparable to the 08 recession. Politicians on both sides of the aisle are desperately doing everything they can to stop these cuts. If this is the reaction to 100 billion in cuts, we are screwed. 

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Anenome replied on Wed, Nov 28 2012 9:04 PM

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idol:

This government, so long as it's made up of Democrats and Republicans, will never seriously cut spending. The over-hyped fiscal cliff, which would cut spending by a pathetic 100 billion, has been treated like a horrible financial crisis waiting to happen, comparable to the 08 recession. Politicians on both sides of the aisle are desperately doing everything they can to stop these cuts. If this is the reaction to 100 billion in cuts, we are screwed.

You don't understand, I guess. Going over the fiscal cliff means the gov can't pay its bills anymore. Means it stops writing checks. To everyone. Means the government's credit rating could take a hit--which would push the cost of borrowing up considerably because of how much money the gov does borrow. What is debt service now yearly, $700b? If the US credit rating drops even minorly, say the cost of borrowing goes up by a quarter of a percent, that would end up costing billions of dollar more in debt service, exacerbating the problem.

And Bernanke's god-awful idea "remove the debt limit cap / QE infinity" is the kind of decision that ends empires and ruins systems, a classic blunder, just as the gov mucking in the housing market led to unsustainable market dynamics. The cap exists because people realize you can't simply borrow with no limit and expect that to be sustainable.

The collapse will come because we have Keynesians in power whom believe that borrowing and the resulting gov-spending is how you bring the economy out of crisis. This will work right up until it doesn't, and then the thing will crash in glorious fashion.

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shackleford replied on Wed, Nov 28 2012 9:09 PM

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Anenome:

 

 

idol:

This government, so long as it's made up of Democrats and Republicans, will never seriously cut spending. The over-hyped fiscal cliff, which would cut spending by a pathetic 100 billion, has been treated like a horrible financial crisis waiting to happen, comparable to the 08 recession. Politicians on both sides of the aisle are desperately doing everything they can to stop these cuts. If this is the reaction to 100 billion in cuts, we are screwed.

You don't understand, I guess. Going over the fiscal cliff means the gov can't pay its bills anymore. Means it stops writing checks. To everyone. Means the government's credit rating could take a hit--which would push the cost of borrowing up considerably because of how much money the gov does borrow. What is debt service now yearly, $700b? If the US credit rating drops even minorly, say the cost of borrowing goes up by a quarter of a percent, that would end up costing billions of dollar more in debt service, exacerbating the problem.

And Bernanke's god-awful idea "remove the debt limit cap / QE infinity" is the kind of decision that ends empires and ruins systems, a classic blunder, just as the gov mucking in the housing market led to unsustainable market dynamics. The cap exists because people realize you can't simply borrow with no limit and expect that to be sustainable.

The collapse will come because we have Keynesians in power whom believe that borrowing and the resulting gov-spending is how you bring the economy out of crisis. This will work right up until it doesn't, and then the thing will crash in glorious fashion.

 

 

I don't think you understand. The government can always pay its "bills." All of the myriad frivolous and idiotic programs and agencies are not bills. Medicare, medicaid, and social security are not bills either. Don't buy the fiscal cliff crap. It doesn't exist. It's an excuse to NOT substantively cut any government spending whatsoever. Congress can always cut spending to pay its "bills." There's a spending problem, not a revenue problem. All it has to do is pay its "creditors." That's simple enough.

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idol replied on Wed, Nov 28 2012 9:17 PM

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The fiscal cliff was created by the government itself with the Budget Control Act of 2011. It was basically a farce to act like they cared about the deficit, but now that we actually have to deal with the provisions of that act, they consider it much more politically expedient to just kick the can down the road. The government will continue to "pay its bills", the only difference is a 3% spending reduction and tax increases.

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Anenome replied on Wed, Nov 28 2012 10:39 PM

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shackleford:

I don't think you understand. The government can always pay its "bills."

Pay with what? The gov borrows money all year long until taxes get paid, then it pays off last year's borrowing, and borrows more than it receives in taxes too, then borrows to pay on the borrows. The fiscal cliff is that point where the gov's authority to borrow ends. At that point, there is no more way for it to pay its bills. It gets effectively shut down. Unless and until more borrowing is authorized, at that point the payments stop.

shackleford:

All of the myriad frivolous and idiotic programs and agencies are not bills. Medicare, medicaid, and social security are not bills either.

How could they not be, since they employ people. Those people receive paychecks. After the fiscal cliff, without continued borrowing authority, those people will stop receiving checks.

shackleford:

Don't buy the fiscal cliff crap. It doesn't exist. It's an excuse to NOT substantively cut any government spending whatsoever. Congress can always cut spending to pay its "bills." There's a spending problem, not a revenue problem. All it has to do is pay its "creditors." That's simple enough.

Of course what you say is true, but show me politically where the government has spent less than the year before. IIRC, last time I heard someone quote a figure it was before 1930 or something like that. Today, a cut in the rate of increase is called a 'cut' and immediately demonized by the left. The left do this because they want big government, big power.

It would take far more political will to cut spending than even to cut taxes, judging by how often either of those have actually happened.

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Prime replied on Wed, Nov 28 2012 11:19 PM

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Anenome, I think you may be confusing the fiscal cliff with the debt ceiling. The cliff is just a reduction in military and welfare spending, coupled with significant tax increases. It has nothing to do with the ability to borrow.

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shackleford replied on Wed, Nov 28 2012 11:28 PM

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The debt ceiling is stupid, too. It's non-existent as well. They can always priortize their spending when it's time to pay the "bills."

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Anenome replied on Wed, Nov 28 2012 11:30 PM

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Prime:

Anenome, I think you may be confusing the fiscal cliff with the debt ceiling. The cliff is just a reduction in military and welfare spending, coupled with significant tax increases. It has nothing to do with the ability to borrow.

I thought the two were innately tied together. Maybe you're right that I have been.

So, then, by fiscal cliff, you guys mean merely the expiration of a set of laws that will be allowed to expire, like the Bush tax cuts and other things.

Ah well, here's an article on the FC for reference.

I'll just say that there's absolutely no excuse to raise taxes. Is anyone else a bit wary of Buffett's involvement in politics lately? Like he's giving cover for these tax increases and the like?