Well I guess I shouldn’t be surprised. Blogging something that could even be construed as a critique of Bob Wenzel’s take on something having to do with Austrian economics–even though you twice deny that that is what you are doing–is as reckless as peeing on an electric fence.
To refresh your memory, yesterday I wrote a post saying this:
Some people are asking me about Robert Wenzel’s take on Peter Schiff/Herman Cain on tax theory. I would have to sit and think through Rothbard’s argument about a consumption tax getting shifted back onto the incomes of land, labor, and capital (goods).
In the meantime, though, let me say…
To repeat, I am not here saying that Wenzel is wrong and Schiff/Cain are right. I’m just firing off a quick point that might move the ball forward for some of you.
What I was getting at in my post–and yes here I did explicitly disagree with Rothbard on one particular point–is that Rothbard somewhere challenged the standard supply-side critique of an income tax, on the grounds that it “discourages savings.” This is a standard supply-side argument, in favor of a consumption tax as opposed to an income tax.
So Rothbard had criticized this standard argument, on the grounds that the government shouldn’t be encouraging people to save more or less; people’s time preferences should determine that. Furthermore, a tax on consumption will discourage savings too, because after all you save today, in order to be able to consume in the future. So that consumption tax that will hit you in the future, will discourage your savings today.
That is the argument from Rothbard I was criticizing. In response, Wenzel didn’t get that distinction, and instead thinks I was attacking the claim about consumption taxes being shifted onto productive factors (the claim I specifically said I would have to think about).
So now for the Rothbard bask: Can someone go find me Rothbard saying that an income tax doesn’t discourage savings any more than a consumption tax? I think it’s probably in Man, Economy, and State, but it’s possible I read it in a shorter essay Rothbard wrote somewhere.
Either way, here’s an interesting take-away from Wenzel’s interpretation:
Rothbard’s view is not that the consumption tax makes consumers poorer, but that the tax is shifted backward to land and labor. Thus, there is nothing in Rothbard’s view about a consumer deciding ” in which time period to distribute the blow.” There is no blow to the consumer.
Are you Wenzel fans sure you want to go with him on this one? Now a consumption tax doesn’t hurt the consumer at all? So retired people (who no longer work), who have all their assets in
gold bonds or actual cash* (so they won’t be hurt by declining corporate earnings or land rents) will be unaffected if Cain institutes a 9%, or for that matter a 99%, national sales tax? Do you Wenzel fans really think that can possibly be correct? If so, Cain should incorporate that into his schtick.
(NOTE: I am NOT here saying that Rothbard said a consumption tax doesn’t hurt consumers at all. As I said all along, I need to go study that argument again, because there are a lot of moving parts. I’m saying that Wenzel’s quick reaction to my post, implies such an absurdity.)
* EDIT: I originally had “gold” as the asset, but changed it to “bonds or actual cash” because the retired people would get hit with the national sales tax (perhaps) when selling off their gold holdings. Now I’m waiting for a new Wenzel post: “Murphy says holding US fiat dollars a better investment than gold!!”