[PEN-L:4867] Re: Asset tax

[Jim Devine <JNDF%LMUACAD.BITNET@xxxxxxxxxxxxxxxxx>]

On Fri, 28 Apr 1995 12:48:34 -0700 Paul Cockshott said:
>I think that you ascribe too much power to the movement of
>capital. Rates of return on capital differ between states and
>between industries. The movement of capital probably does constrain
>these divergences but it does not elimate them.

In a message I sent out, I noted that profit rates don't
actually equalize. But all else constant, having a higher asset
tax in one area of the world than in others would push capital
to move to the less-taxed areas.  This would not be instantaneous
except if the tax tried to hit "hot money."  In the short term,
incidence would be on asset-holders, but in the longer term,
it would be passed more and more onto workers and consumers.
(Part of the delay is because passing on tax incidence
involves a learning process; part of it is simply due to
frictions.)

The length of the "long run" would depend on the type of
asset we're talking about. A tax on owner-occupied housing
would be impossible to pass on, as far as I can see. (though
it might hurt the demand for housing and the construction
industry.) A tax on
natural resource holdings would be very hard to pass on.
But a tax on financial assets would be easier to pass on.

>How exactly do you think the mechanism by which capital would
>pass on the tax would operate?

(1) disinvestment from high-tax areas of the world;
(2) investment in low-tax areas of the world.

A tax on real assets might cause an absolute fall
in the amount of real investment, encouraging recession.

As noted, this process depends on what kinds of assets you're
discussing.

>If the tax fell not on companies but on individuals who own the companies
>I do not see how they are going to 'pass it on' to non-proprietors.

The individuals could emulate Rupert Murdoch and become citizens of
other countries. Depending on the tax code, they could move their
asset ownership to other countries.

>The fact that the wealthy will oppose it hardly seems a sufficient
>argument for socialists when considering what tax policies they should
>advocate.

Ideally, you're right. But if I were sending troops to storm
a machine-gun nest (to choose a bloody example), I would be
interested in trying to figure out what the machine-gun nest's
responses would be when my troops storm it.

in pen-l solidarity,

Jim Devine
jndf@xxxxxxxxxxxxxx or jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ., Los Angeles, CA 90045-2699 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950