Tuesday, March 18, 2014

Meddling via GDP

Measuring GDP certainly increases government meddling; the meddling comes with one very valuable end – increased tax collection.

There are a few taxes based on asset values – property taxes and the like.  The vast majority of taxes, I believe, are activity based – income tax, sales tax, use tax, tariffs, etc.

GDP is a measure, fallible as it is, of activity.  The quality or desirability (as valued by relatively free market participants) of the activity is secondary, if not unimportant, to the state.  (As an aside, the state is not actually interested in increased GDP, but in an increased GDP to which it has access – consider rice as opposed to the underground crops planted by those who wished to avoid the state.)

You get what you measure.  They measure GDP.  The entire apparatus is focused on increasing GDP – increasing economic activity for purposes of increasing collectible taxes based on activity.  One of the more insidious tools used to increase measurable activity is central banking

One purpose of central banks and the cartel surrounding these is to increase credit – hence increase economic activity (GDP).  This causes an artificial boom, thereby greatly increasing the activity-related taxes available to the state.

Sure, this is followed by a bust.  Even in a bust, various activities (sales taxes, use taxes) continue, albeit at a reduced rate.

However, in a bust income typically shrinks or disappears.  This, on the one hand, is looked at as harmful to the state – a drastic reduction in income related taxes.  However, on net, the state still comes out ahead – the losses in the bust don’t offset the gains in the preceding boom.

Taxes on income must typically be paid the year earned.  Taxes on losses typically cannot be recovered until future gains are realized – if ever.  For individuals, capital gains offer one example: gains are payable in the year realized, losses carried forward until they can be applied against future, if ever, gains.

For businesses, items such as Net Operating Losses (NOLs) are carried on company balance sheets for years, and often expire worthless.

The state captured the income tax associated with the boom, and defers or never suffers the income tax loss associated with the bust.

And the root of this is the focus on measuring GDP.

1 comment:

  1. yes, I recently experienced this in connection with a play, then mis-play of the silver "market". Gubmint took an immense bite out of my cap gain, but a subsequent and almost equally large loss is to be amortized forever. As an overall experience, though, it was a blast. Now I invest in lead.