Eugene Coyle wrote:
> When I made the query about a progressive tax I had in mind that the
> fundamental idea behind it is that after its imposition, the dollar
> income disparity between low and high income taxees would be reduced.
>
> Take two persons, one paid $10,000 and one paid $100,000. A
> $90,000 spread. Even a flat tax now imposed would reduce the dollar
> spread. Say a 10% tax -- now the spread shrinks to $81,000. A
> progressive tax would shrink the gap even more. Say a 5% tax rate for
> the low income, a 10% for the higher. Now the taxes would be $500 and
> $10,000, so the gap would be $80,500.
>
> That is what shaped my thinking when I made my query.
You are mistaken, Gene, and I though most of the posts made that clear.
A tax system is progressive when tax rates rise with income. A taxpayer
pays a larger share of income,
the more income he/she has. As opposed to a flat tax where rates are
the same for all income, and a regressive tax, where people pay a higher
rate with lower income, such as a a flat rate sales tax without
exemptions (it's regressive as to income because the poor consume a
larger share of their income).
It follows that when a tax *cut* returns more money, as a share of
income, to a taxpayer, that too is progressive. The tax rate for lower
income persons will be reduced more than the rates for those with higher
income by the tax cut, thus making overall rates more progressive.
A reduction in the price of something a person buys has the same effect
on disposable income as a
tax cut--it's an increase in income. So the economists used the term
correctly. As you explained it, the savings from the price reduction by
lower income people is a larger share of their income than is the
savings of higher income persons as a percentage of their income. The
effective as to income is progressive.
That's what a progressive tax system is. It has nothing to do with
absolute dollar gaps. The point is, it is not a good idea to take terms
with clear meanings and redefine them to make a different point. Only
confusion is likely to result, and, for a lefty, that's a good way to
lose people's confidence that you know what you're talking about.
Just because a policy is progressive in terms of income does not mean it
is desirable.
> Michael P. was the first to respond and he equated my description of
> the case as the elimination of a sales tax on electricity, and hence
> progressive. I guess that gets to the heart of my query. It is
> correct that it is like the elimination of a sales tax -- but the
> DOLLAR reduction is much larger for the high income/high use
> customers. So, is that progressive? It doesn't shrink but rather
> enlarges the gap in the amount of money income classes are left with
> afterwards.
See above.
> Max next laid out the alternatives -- dollars or shares?
No, they these aren't alternatives. Max said "Progressivity is usually
defined in terms of shares
of income, not absolute amounts. So if my income is $10 and Bill
Gates' is $1 million, a tax cut that returns $2 to me and $100,000 to
Gates is progressive."
He then added: "Some advocates use the absolute dollar amount to make
their case if the shares don't work out." . Max also mused about what
the Center for Tax Justice does with the figures and how "(absolute)
dollars are more tangible to most people". Max likes to muse, as do I.
The only question is what the term "usually" is doing in his first
sentence.
> Devine argued -- and later elaborated the idea -- that industrial
> customers seeing a drop in the cost of electricity will be forced by
> competition (among themselves) to pass along lower prices to their
> customers, thus adding a second benefit to the residential customers
> who's first benefit was a drop in their own electric bills. Wow!
> There's a lot to take on in his post, but it is off the topic, so I
> won't. There's the glimmer of something here, but so tiny! The high
> income residential customers, moreover, buy more of the industrial
> stuff, so if Devine is correct they'll get more of a benefit of that
> than will low income customers. Is that progressive or ... -- no,
> sorry I asked.
Devine's point was not that the indirect effect on disposable income
from a reduction in electricity prices, compared to the effect of lower
prices on consumption and disposable income directly, is large--it's
not--but that the indirect effect is often ignored.
> Rod Hay asks about the experience with deregulation -- is it giving
> the benefits promised? No, it isn't. It isn't even delivering the
> benefits on the energy piece of the total, and rates for the
> transmission and distribution are going up, quite sharply, and
> swamping the downward push on the energy side.
Where do you see this? Transmission and distribution costs are small
compared to generation. Plus they are still regulated on a cost basis,
and consist mainly of sunk capital costs (depreciation of plant and
equipment). How could they be going up sharply as you suggest to swamp
any reduction in generation costs? Did the state commission in Calif.
deny some of the existing plant costs (e.g., for nukes) and thus lower
rates a bit with deregulation (rates for those who don't switch
suppliers)? Do you have evidence of sharply rising transmission or
distribution costs and rates in Calif?
> Plus, in a few short years the energy side will start up as the
> players work out "cooperation" as has happened with the airlines.
This isn't going to be that much like airlines, Gene. Utilities will
fight to avoid competition and control prices on two major fronts.
Generation, by merging existing capacity and creating generation and
marketing affilites in an attempt to control the introduction of new
capacity under deregulation. And transmission, where they will fight
the creation of genuinely independent operators of the grid, by e.g.,
creating for-profit companies (in which they own a share) to run things
and allow themselves some measure of control over power flows.
RO
