Study Guide to Man, Economy, and State with Power and Market

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Chapter 4: Binary Intervention: Taxation 215 Technical Matters 1. The issue of “double taxation” can be confusing. Many economists argue that the income tax favors consumption and penalizes saving, because (say) if there is a ten percent income tax and Smith buys a savings bond, then Smith is first taxed on the income which he uses to buy the bond, and then Smith is taxed a second time when the bond matures and he is paid its face value. Reading Rothbard’s critique (p. 1169) of Fisher and others—“There is therefore no reason here to say that an income tax especially penalizes savings-investment”—one might conclude that Rothbard rejects such an analysis. However, Rothbard later on (pp. 1169–70) does indeed admit that an income tax reduces the net interest rate earned on an investment, and to that extent it penalizes saving. The (suggested) resolution to this apparent contradiction is that Rothbard is taking Fisher et al. to be arguing (in our example) that a 10 percent income tax penalizes present consumption of $100 by $10, while it penalizes present savings of $100 by more than $10, since the $100 investment will yield more than $100 of income in the future. It is this particular type of argument that Rothbard rejects. (If this is indeed their argument, then a slightly different way to expose the fallacy is to point out that the “higher” absolute amount of taxation in the future must be converted to present dollars when deciding whether to consume or invest the $100 today. Thus the rate of return completely drops out of the analysis when assessing the tax’s impact on present versus future consumption in this respect.)
216 Study Guide to Man, Economy, and State with Power and Market 2. In footnote 11 (p. 1157), Rothbard erroneously says that a tax on income causes a “rise in the opportunity cost of leisure,” but it actually causes a fall, i.e., leisure becomes cheaper and thus people consume more of it. In footnote 36 (p. 1187), the final equation should be C=R/(i+t). (In other words, Rothbard should have added parentheses for clarity.)
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CONTENTS INTRODUCTION . . . . . . .
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In June of 2004, I became convinced
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Introduction ix appropriate, I have
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Chapter Summary In a money economy,
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Chapter 4: Prices and Consumption 4
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Chapter 6: Production: The Rate of
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Chapter Summary This chapter explai
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Chapter Summary Entrepreneurial pro
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Chapter Summary Consumer preference
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Chapter 10: Monopoly and Competitio
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Chapter Summary Like all goods, the
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Chapter 11: Money and Its Purchasin
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