Quote:
Originally posted by island911
Aurel, you're WAY OFF on a tangent. (intentionally, I imagine)
You seem to be confusing "lowering taxes" with "lowering taxe rate." (a VERY important distinction)
What I remember from econ 101, is this thing called "velocity of money." (def'n)
Essentially, gov'ts take (recieve) their cut (money) only at the point of transaction. (fewer transactions = few $'s)
On a given purchase; When the overhead of tax is too high, the number of (reported) transactions drops. Thus, it is in the gov'ts interest to find the "sweet-spot" between tax-rate and taxable spending.
Goran, take for example how Sweden controls alcohol sales by using punitively high taxes. It slows the sales (and taxes).
. . . or, in more extreme cases, it sends the sales underground; as it has for your Nordic neighbors to the west. (almost eliminating those taxes .. .even though the rate is high)
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Correct. It's a "bathtub curve". Tax the people too much and amount of transactions will decrease. There is a certain point where increasing tax rate will give negative effect.
That being said, US tax rates are pretty low compared to other countries (and thay still doesn't expirience rampant black-market trade) so I really doubt that point of diminishing returns would be reached in US even if you substantially raised your tax rates.
Of course, this is open to debate. "Point of diominishing returns" is tied to populations expectations and preferences.
Using Swedish alcohol-monopoly as example is quite bad choice though, as it's main reason
is not to bring in money to the state (it's makes a very marginal portion of GDP) but to try to bring back some of money to cover for damage that alcohol is causing for Swedish state.
You see, when you pay so much for wellfare, you don't want to waste a big chunk of system for caring for unemployed chronical alcoholists but save it tfor productive workforce that pays taxes.
That's why we have so high taxes on alcohol. Now we are in EU so there is a pressure to dismantle the system. Personally, I as a moderate consumer of alcohol find it pretty bad. Systembolaget, as it's called, has a vast supply of articles...products might be expensive but add-on percentage is quite similar which means that I can buy Fetzer for just 50% more than California Red.
Result is that moderate consumers are persuaded to buy quality-products and those in high-consumtion risk zone are penalized by high prices, bringing back some money that can be used in treating them and easing the impacts of alcohol-abuse.