[lbo-talk] taxation on labour or capital?

Mike Beggs m.beggs at econ.usyd.edu.au
Sat May 10 19:43:38 PDT 2008


On Sat, 2008-05-10 at 12:57 +1000, Bill Bartlett wrote:


>If they have to pay higher wages due to the vagaries of supply and
> demand, then the higher wages ARE the going wage. Employers aren't
> paying higher than the going rate, they are paying what is the
> current going rate.

However you want to phrase it, the point is that the 'going rate' is not independent of demand for labour, competition among firms in the labour market. Remember we started this debate over whether an exogenous standard of living exclusively determined the real wage. Because that's the necessary condition for all taxation falling on surplus. I agree that there's an exogenous _element_ in the short-run 'going rate', but that's not all there is to it.


>That's true, there are always competing products, different things
> you can spend your money on. If the price of bread gets too high, the
> peasants can always eat cake. ;-) Seriously though, you're right. But
> I fail to see how that supports your conclusion.

Because it sets a limit to how much of a tax will be passed on in higher prices.


>No, that's my point exactly. They can't arbitrarily keep wages down
> in spite of the supply and demand context. But by giving an income
> tax cut to employers, this compensates employers for the increased
> wages they would have had to pay anyhow. Workers get their pay rise,
> that they were in a position to demand. They are happy, because they
> neglected to take into account that government services will have to
> be cut in consequence of the tax cut given to employers. Employers
> wage cost, net of the income taxes they have to pay, remain
> substantially the same. Everybody happy, for the moment.

But the deal was an income tax cut for _workers_, in a trade-off for _lower_ wage claims. I agree that the Accord was mostly bad news.

I'm confused as to what you are taking my point to be exactly. All I argued is that taxes can come out of wages or surplus, and that the determinants are complex. I agree that where the tax _nominally_ falls does not by itself determine who ultimately pays. But I disagree that capital always ultimately pays.

Cheers, Mike scandalum.wordpress.com


> At 12:13 PM +1000 10/5/08, Mike Beggs wrote:
>
> >But the bosses are also competing against each other for labour in the
> >labour market, so they may have to try to outbid each other, raising the
> >wage. This is a fairly normal state of affairs too at certain points in
> >the business cycle, reserve army of labour notwithstanding.
> >
> >>>All this is elementary. So where's this room to move that you speak
> >>>of? Where's this capacity to pay higher wages than are necessary to
> >>>recruit the labour necessary? How is it theoretically possible to pay
> >>>more wages than you need to, more wages than you have to, without
> >>>going broke in the end?
> >
> >Well the point is that they may need to pay higher wages than the
> >current going wage because they are recruiting from a limited labour
> >pool in competition with other employers.
>
> If they have to pay higher wages due to the vagaries of supply and
> demand, then the higher wages ARE the going wage. Employers aren't
> paying higher than the going rate, they are paying what is the
> current going rate.
>
> > >>Well sure. If the market isn't competitive, then limits only apply at
> >>>the upper and lower extremes of what is materially possible. But its
> >>>a lowest common denominator situation isn't it. If the whole world
> >>>agrees to stifle the market, it can work. But (in the context of a
> >>>privately owned means of production) all it takes is one or two rebel
> >>>jurisdictions to break up the party, to re-introduce competition.
> >
> >It doesn't take cartel or monopolistic behaviour to enable firms to pass
> >on costs in prices though. If all firms in an industry have the same tax
> >applied, no-one's in a position to start price-cutting competition,
>
> Some are in a better position to shave their profit margin. Some are
> in a better position to refine their production process. Of course
> some are in abetter position to compete on price. If they have to.
> And if its a competitive market, they do have to.
>
> >unless they already were before the tax. How much of the tax they pass
> >on in price increases depends on things like the price-elasticity of
> >demand for the product, on the overall effect of the price increase on
> >revenue. Of course, in reality, all firms in an industry will not have
> >the same tax applied because they will be in different countries. But
> >these other factors are still relevant.
> >
> >So I don't agree that "in the context of market forces, taxes are at the
> >expenses of profit." It depends on the market forces. I don't think
> >there's a simple binary between 'market forces' and 'monopoly'.
> >Competition is always in effect, but in complex ways.
>
> That's true, there are always competing products, different things
> you can spend your money on. If the price of bread gets too high, the
> peasants can always eat cake. ;-) Seriously though, you're right. But
> I fail to see how that supports your conclusion.
>
> > >>>Actually, Australia under the Accord in the 1980s provided an
> >>>>interesting little example - where income tax cuts and superannuation
> >>>>benefits were traded to workers explicitly in return for wage
> >restraint.
> >>>
> >>>Yep. Good example of what I was saying. Income tax cut = wage cut.
> >>>It was explicit there, but it is always at least implicit that an
> >>>income tax cut will be the basis of a corresponding wage cut, or
> >>>alternative to an otherwise unavoidable wage rise.
> >
> >It's debatable as to how it worked out in practice though. That was the
> >rhetoric, but it simply wasn't in the power of the government or unions
> >alone to determine the ultimate effect on real wages.
>
> No, that's my point exactly. They can't arbitrarily keep wages down
> in spite of the supply and demand context. But by giving an income
> tax cut to employers, this compensates employers for the increased
> wages they would have had to pay anyhow. Workers get their pay rise,
> that they were in a position to demand. They are happy, because they
> neglected to take into account that government services will have to
> be cut in consequence of the tax cut given to employers. Employers
> wage cost, net of the income taxes they have to pay, remain
> substantially the same. Everybody happy, for the moment.
>
> Its a shell trick. An attempt to defeat the market imperative to
> increase wages. And it can temporarily work, because the impact of
> reduced government services that flows from the tax cut takes a while
> to flow through. When it does come into effect of course, the workers
> will need another pay rise, but by then they may not be in as good a
> bargaining position to actually get it. The supply and demand
> equation may have weakened the going rate for labour. The union
> movement may have got fat and lazy doing deals with their mates in
> government and not remember how to go about doing their job, which is
> securing the going market rate of pay for their members. Which in
> fact is what happened, Australian unions have never recovered from
> the Accord days.
>
> But it all operates in the context of the market, none of this
> weakens my argument that income taxes are taxes on capital. Because
> it doesn't contradict the notion that wages are determined by market
> forces.
>
> Bill Bartlett
> Bracknell Tas
>
> ___________________________________
> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk



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