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Comment by graeme | Hacker News Reader

Are there any types of tax that are:

1. Reasonably within the means of cities to levy, and 2. Economcially efficient?

This per employee tax was literally a tax on jobs: it taxes a socially beneficial thing. Of course, many taxes are like this, such as the income tax. But adding a totally new tax is mort distorting than simply raising existing income taxes.

And, at a state /federal level, income taxes for some reason are more politically feasible than taxes on externalities, which are economically efficient

If efficiency is out of reach, are there any taxes cities can levy that at least aren’t lousy in terms of efficiency? It seems to me that municipalities generally aren’t given good taxation powers.

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> Are there any types of tax that are: 1. Reasonably within the means of cities to levy, and 2. Economically efficient?

Economic orthodoxy says that taxes in order of efficiency (from most to least) are: Land value taxes > property taxes > consumption taxes > income taxes > capital taxes > wealth taxes.

Cities in general are able to levy land value, property, and sales taxes fairly easily, and these are the most economically efficient taxes.

(And if you want to move from theory to empirical evidence, when relatively rich societies want to raise a lot of money, they almost invariably lean heavily on very large consumption taxes. If you need to raise a lot of money and don't want to burn your economy entirely to the ground, you can do a lot worse than a 20% VAT.)

Why didn't the city increase land, property or sales taxes? Did they just want to pick a big, popular target?

Well yeah. Or probably even more importantly, a tax that most people wouldn't be paying.

Efficient taxes tend to 1) be broad based and 2) be very hard to avoid by changing behaviour. And that means they will impact a lot of voters, and voters don't like paying taxes. :)

Consumption taxes on luxury goods usually aren’t very distorting at the local level, especially since its pretty easy to define luxury goods that aren’t locally made. The problem is that the max revenue that they can collect is much lower than income or common consumption taxes, which have a wider base with less ability to evade.

Of course with luxury taxes the issue is avoidance more than evasion.

Sales based taxes are either regressive because it cannot be done without and are more or less fixed or avoidable because it can be done without.

Of course if reduced consumption of the given luxury is the goal it is sorta mission accomplished (too high and black markets may arise) but undermines the revenue generation goal.

I figured the goal was revenue, hence my dismissal of it as an effective tax for funding public services.

What’s the difference between avoidance and evasion with regards to taxation?

Evasion is illegal. i.e. not paying your income taxes

Avoidance is legal. i.e. if there was a local luxury goods tax, you could decide to either:

1. Not buy luxury goods, or

2. Buy luxury goods from some other area, without a tax

A local luxury goods tax would be highly likely to destroy the local luxury goods industry without actually lowering luxury good consumption, as such a tax can easily and legally be avoided.

Whereas, local property taxes can only be avoided by moving or selling. They can, however, illegally be evaded through fraud. This is why property taxes are more effective for cities: hard to avoid, hard to evade, and evasion can be punished with fines or jail.

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