November 22, 2024

We have outlined different discussions of prices, inflation since the pandemic confusion over what drives inflation. Now we have to bring taxes into it.

The discussion of prices, inflation, and taxes are informed by ideology. The ideologies driving our understanding of economics, how we talk about money, and who we expect to pay for certain things determines both our understanding of what is going on in the world and how we should respond to it.

There are very different ideologies and philosophies available when describing the economy and thus vast differences in the way we all understand the world depending on which ideology we have. Most of us do not question the ideology we have, instead we think of it as Truth.

This means rational, so called "informed", people can disagree about the way that everything is set, right down to how prices are set.

Let's have a look at the discussion over the recent announcements of short-term cuts to consumer taxes like the GST/PST/HST.

Here are some points that fit the classical view, but are also rather indisputable:

• Taxes (like wages) are socially determined.
• Taxes are the way that we pool money collectively. Through extracting a percentage of the value created in society/economy and direct that money towards socially determined outcomes (through state/government spending).
• Consumption taxes are costs incurred by and paid to the government by firms (not consumers).
• Consumption taxes are calculated as a percentage of the price of a good that was sold.
• The mass (actual amount) of flat taxes on consumption are higher for higher priced goods—even for the same good—sold by different firms.
• Just because the GST/PST/HST appeared on your bill does not meant this money gets to the government.
• Firms get different GST/PST rebates when paying their consumption tax bill to the state tax board, also socially determined.
• Consumption taxes like the GST are flat percentage taxes and are seen as regressive because the cost of the tax is more or less the same no matter who is buying the good or service.

Now, you may believe something different.

You may believe that consumption taxes like the GST are paid by you, the consumer and that money goes directly to the government.

You may believe this because the cost of the tax is included on your receipt as some kind of additional charge to the "price" that would have been charged if you didn't pay the tax.

However, this is a slight of hand played by capital. It is not a real representation of price, costs, or price setting.

They could easily dis-aggregate the price into other component parts of the costs:

• wages
• other taxes paid on top of wages (employment insurance, etc.)
• electricity
• physical inputs
• debt
• the tip portion of the wage

They could even estimate the profits and include that on the receipt—though they would never do this.

Now, it is true that you, as a consumer, pay for all those component parts of the price when you buy something.

But, it is not true that you pay them in addition to the price.

The consumption tax is not in addition to the price, the final price you pay is the actual price. The final price is the competitive price, not the "pre-tax" price.

If you think you pay the tax in addition to the price it is because you have been hammered with neoclassical ideology of price every day and every time you buy something. Because private capital doesn't like paying taxes (they want the entire value of production for themselves) they have waged a campaign to convince you that taxes are somehow in addition to the cost of production, by pretending to show you the cost of the tax on the bill.

But, it is a political ad campaign, not reality.

Taxes are socially determined costs as part of production, you have already determined that the consumption tax is part of the cost of production by voting for parties that established this tax. It isn't a choice to now pay it, so it should not appear on the bill as a separate line item any more than income taxes of the CEO are an item on your bill.

Why can they get away with this? Because neoclassical theory of price is stupid.

The current orthodoxy called neoclassical (and Post Keynesian) theory pretends that firms decide their profit rate and set that on top of all the rest of the "costs" to set the price. This is nonsense and doesn't actually happen anywhere in the real world.

Your understanding of the economy is determined by the ideology you bring to how you understand price setting—even if you do not know it is an ideology.

In Real Economics/Classical Theory/Smith through Marx through Keynes through Straffa through Shaikh theory of the economy, price is set by competition.

Real competition is determined by Regulating Capitals.

See this video as an explanation (there is sound, but you have to really turn-up the volume) of that price setting process of regulating capital as it applies to housing. It is similar for goods and the concepts are the same.

Video summary:

The Regulating Capital for goods is the capital that is able to set the price because it is able to sell at the cheapest price because it is able to produce at the lowest cost.

The Regulating Capital is not always the same as competition over time may change who is the regulating capital for the price, but there always is one.

Profits are therefore determined by the difference between the price set by the regulating capital in a competitive market and each firm's costs of production. Each firm's cost of production will be different, so each firms profit rate will be different.

This includes the costs of taxes since taxes are different for different priced goods, they affect the cost differently for different firms because they are based on sales price not costs. Those sales prices can be different for the same good across firms and across time.

This means, in the end, you may not see any decrease in the price of the goods that the tax has been reduced.

Indeed, a reduction in a consumption tax is likely more of a profit subsidy to capital than it is a reduction in cost to the "consumer".

This creates a problem for the Left. We oppose flat taxes as they are regressive, but we also oppose the unsophisticated and unsystematic reduction in flat consumption taxes.

Both increases and decreases in GST are, under this government, regressive because the government that is determining how those taxes are applied are usually not controlled by the interests of the working class.