I was struck by this passage, and especially the conclusion:
"Transactions costs interfere with the ability of parties to find mutually beneficial exchange, thus impeding optimal resource allocation and the creation of maximum gains from trade. Transactions costs lead to missing markets, as in the case of environmental pollution and other common-pool resource situations. This driver of so-called “market failure” complements Steve’s process-oriented argument and reinforces his points … and it implies that one high-priority objective of public policy should be to reduce transactions costs, not to impose regulations that are intended to “correct” market failures but have little realistic hope of doing so effectively."
Agreed! But also...
Taxes on investments impose a significant transaction cost. One that is different from costs imposed by the market… because taxes are a cost imposed artificially, by the government. In other words, taxes are perhaps THE transaction cost that can be most directly reduced by public policy. And doing so, would have environmental benefits.
Historically one of the most environmentally beneficial tax cuts was the 1981 introduction of accelerated depreciation, which reduced the cost of capital for new investments in property plant and equipment. And supply siders intended that the policy would spur new investment, jobs and economic growth. They did not anticipate that it would accelerate the energy efficiency revolution, and lead to the decoupling of energy use per unit of GDP. But it did, by making many more energy efficient investments pencil out, and by accelerating the retirement of older less efficient equipment, and the deployment of newer equipment, which is nearly always cleaner and more efficient than the older models.
A cost-effective improvement over accelerated depreciation would be a moderate flat tax on most debt, plus the use of tax exempt debt for PP&E. That would greatly reduce a key transaction cost imposing a barrier to the adoption of newer, more efficient and environmentally beneficial technologies.
I was struck by this passage, and especially the conclusion:
"Transactions costs interfere with the ability of parties to find mutually beneficial exchange, thus impeding optimal resource allocation and the creation of maximum gains from trade. Transactions costs lead to missing markets, as in the case of environmental pollution and other common-pool resource situations. This driver of so-called “market failure” complements Steve’s process-oriented argument and reinforces his points … and it implies that one high-priority objective of public policy should be to reduce transactions costs, not to impose regulations that are intended to “correct” market failures but have little realistic hope of doing so effectively."
Agreed! But also...
Taxes on investments impose a significant transaction cost. One that is different from costs imposed by the market… because taxes are a cost imposed artificially, by the government. In other words, taxes are perhaps THE transaction cost that can be most directly reduced by public policy. And doing so, would have environmental benefits.
Historically one of the most environmentally beneficial tax cuts was the 1981 introduction of accelerated depreciation, which reduced the cost of capital for new investments in property plant and equipment. And supply siders intended that the policy would spur new investment, jobs and economic growth. They did not anticipate that it would accelerate the energy efficiency revolution, and lead to the decoupling of energy use per unit of GDP. But it did, by making many more energy efficient investments pencil out, and by accelerating the retirement of older less efficient equipment, and the deployment of newer equipment, which is nearly always cleaner and more efficient than the older models.
A cost-effective improvement over accelerated depreciation would be a moderate flat tax on most debt, plus the use of tax exempt debt for PP&E. That would greatly reduce a key transaction cost imposing a barrier to the adoption of newer, more efficient and environmentally beneficial technologies.
“a flat tax on debt?” How is debt taxed?
The interest payments are tax deductible to the payer. Are you referring to the tax paid by the recipient of the interest payments?