Let's Consider Some Things (About Them Taxes!)

Day 1,105, 17:08 • Published in USA Bulgaria • by Jewitt


29 November, 2010, Day 1,105 of the New World - The following Report is a special return to normalcy, discussing the very first topic that this paper ever delved into: Taxation and fiscal policy.

There has been ongoing debate about taxes. Are they too high? Are they too low? Are they just right? Presented in this article is a brief overview of my own personal economic theory, which inter-laps with the aging One Eye Thought and consideration of our changing nation's economy.

Without further introduction, here is the article. Note that this was originally posted on the eUS Forums, under the thread, "Tax Rates," and I encourage all interested to delve into the debate.



In this post I would like to explain the Laffer Curve and what it has to do with our tax scheme. I will ignore the VAT v. Income debate, as it takes a truly idiotic conservative or an intelligent Libertarian (or a little of both) to endorse such a system in-game and, if I dare say it, IRL. I will also cover at the bottom of this post the issue of savings and its effects on the eRepublik economy.

If you oppose or support a tax system and do not even grasp the basic concepts contained in this post, you are harming the policy you are advocating by making its supporters look like complete intellectually deficient Britons. Read, learn, become a better weapon for your agenda.

The Laffer Curve is named after the guy that came up with it, Laffer. Don't ask for his first name, I can't remember and Google can tell you.



Now isn't that pretty? First, let's get some things out of your mind. First of all, that graph is not saying taxes at 50% will bring about maximum revenue. The side of the curve below "Maximum Revenue" labeled "Point A" will be referred to as Slope A. In this fashion we will name the side with "Point B" Slope B.

So, what are you looking at? Let's explain it under a few assumptions. This in no way means that these numbers are factual. Let's say that at 1% and 100% taxation, we make only 1 USD. Let's begin by saying we have income tax at 10%. We make 100 USD. Now let's go to 20%. We now make 200 USD. As we see on Slope A, revenue increases as taxes increase. Now let's say the equilibrium is 30% where we make 300 USD. Let's make taxes 40%. At 40%, we now make 200 USD. This is due to many reasons, such as citizens having less money to purchase goods with. Increase taxes to 50% and we now make 100 USD. Now we are losing even more money because consumption is down. This inadvertently has probably caused prices to drop, profits from companies to crumble, and the general purchasing power of the citizen to fall. So this leads us to the assumption that on Slope B, as taxes increase, revenue decreases.

Here's a graph showing this information:


Photo courtesy of myself.

In this economy, we also notice something. It's not perfect. We began making our revenue at 10%, but lost it after 50%. So in theory, this economy could be making quite a few losses at 70% (10% from 60😵, whereas at 1% (9% from 10😵 the economy is making 1 USD. This also helps show that the Laffer Curve does not give clear answers, and we need to experiment and show empirical data to back up all moves.



Now, let's fast-forward to the eUS theory. At one point in time, I believe it was Cromstar or ProggyPop that called it the "One Eye School of Economics," which insisted that income tax was a far better and more efficient way to budget and plan an economy than VAT. Following that was another School of Economics which fought Import Taxation, but for simplicity sake we like to throw it in with One Eye since he really was the genius of income tax persuasion and anti-Imports. That is also a topic for another day.

Under the One Eye School one looks at the efficiency. That is, all those who follow it look for where the equilibrium point on the Curve is and we try to obtain it. After some albeit imperfect conditions (we rarely ever are in a stable economy to begin with, especially now with Admin intervention almost weekly) we determined that the equilibrium existed somewhere between 25% and 30% income. We found this out while I was actually Secretary of the Treasury during our invasion, when I recommended we temporarily boost income taxes to 30% to grab as much USD as possible from two clickers in regions we were about to lose.

I was mistaken, and forgot this basic economic principle. For the sake of simplicity, let's say that at our previous level of 20%, we made 50,000 USD a day. When we boosted our taxes to 30%, we actually made 47,000 USD a day. Mind you, we only lost a few states that had alive populations below twenty each. This lead myself and the entirety of the Economic Council (now relatively defunct...wish someone would revive it) to look into the possibility of a Laffer Curve, as in real-life the Laffer Curve in the United States is estimated around 60% of a household income as of 2006 (yes, America, you're undertaxed and over-saving/spending like Hell). Our error was we thought, absent-minded, eRepublik was similar to real-life.

It only took a week of data gathering (seven days proved to be enough to realize we were making far less than before) for my recommendation for a 30% income tax to be removed, and I personally asked then-President Harrison Richardson to ask Congress to lower them to 25%. We were conducting our own little experiment in the Economic Council, and the United States was the mouse.

Two weeks passed under the 25% income, and we netted around 59,000 USD a week (again, for simplicity's sake...I cannot recall the numbers and am too lazy to look at the Congressional records). So this proved that we were still on Slope A at 25% income, meaning we could either increase or keep the taxes as were and still be on Slope A.

Fast-forward to today, and our taxes were dropped to 20%, then up to 25% again, then back to 21%, and now at 23%. Each time we have made an increase, we have noticed revenue gains. Therefore it is numerically proven that the 23% income tax rate is on Slope A of the Laffer Curve.



The next problem is savings. Now, I did say problem. It is nice to have a bunch of savings and be able to blow it all on that big massive battle. But, when is that massive battle going to happen? Will that big massive battle be as important to you as it is to me? What if I decide a battle in London is worth "going all in," while you think it's not even worth buying a weapon for? What if ten days later you see this amazing battle that will "change the war forever!"? I already spent mine on another battle, so I am useless. You're left alone.

Savings is individualist. It courts the individual and is consumed irregularly. Efficiency and One Eye School wise, savings is more of an impractical harm on the economy than it is a savior. It also creates an imbalance in forecasting revenue (end up with extra USD to convert than planned), battle damage (overspend tax payer's dollars on wasted damage), and many other ailments which make us inefficient. The savings are best spent, again efficiency wise, in the U.S. Government.

Unlike real-life where the Government is absolutely corrupted and barely transparent, the eRepublik United States Government is 100% transparent (after a few months...nothing like 8 to 16 years like the RL Gov't), 100% accountable, and the fact that a poor worker can post an article and have it skyrocket to the Top 5 media of the entire country is unrealistic, and a welcome whistle-blower in some situations. In this, I have my full faith in the United States Government to appropriate my tax dollars properly. Why?

Whenever an individual spends all of their savings on a battle, either to grab a battle hero medal or to contribute to the overall glory of the nation, that is money spent only for retention and not efficiency. If they have been here long enough to accumulate savings, they have already been retained. Retention is no longer as major of an issue. Especially if they ranked up their citizen on their own dime and then quit after spending all their savings.

This is where another School of Economic Thought comes into play. To be honest and not so conceded sounding, a poll was conducted a while back where there was the "One Eye School" and the "Jewitt School," and the clear difference was the view of the individual on the economy. The One Eye School viewed the individual much like a socialistic program of Marxian theory - A well oiled gear in the perfect machine. By having all the gears perfectly formed, oiled, and trained the machine would be unstoppable.

The Jewitt School, named probably because this is the only place where One Eye and I disagreed on, was based entirely on making the game fun for the individual while still focusing on national efficiency, a mediation between One Eye Thought and the occasional Populist/libertarian thought. It challenged the idea that eRepublik was 100% battles, and instead broke it down into 50% battles, 20% social, and 30% economy. That 30% economy is the focus of why I fought for limited savings. It can be debated that the eRepublik of today is much more battle oriented than it was when these debates happened, in which case both social and economy would take a hit and battles would be increased in our daily consumption options (not needs, since in all honesty there's nothing to buy for pleasure unless it helps on the battle field in some way).

Primarily, the idea is to not reach equilibrium. At equilibrium, the tax payers make no savings at all with government revenue at its peak. By being slightly below equilibrium, individuals are able to create a small and meager form of savings. These savings are to be geared towards affording a house (if it is more efficient, mind you, than the equivalent consumable food) and fighting while maintaining 100% working efficiency, ie. >99 Wellness. These meager savings also could be used to purchase other goodies, such as extra fights for a battle hero medal or even buying one's own company.

By allowing citizens to obtain savings and give them a goal to spend for, this alone would be a retention tool that they previously had not had without savings. This is especially important for non-military and non-government citizens whom do not receive daily food/weapon funding or medal gold from election achievements.



With these two sections out of the way, the Laffer Curve and its relation to the One Eye School and individual savings and the Jewitt School's view of them, I hope everyone can now make informed and contributory arguments for and against policies.



tl;dr - Read the wiki article on the Laffer curve, One Eye said efficiency rocks and individual savings are not efficient, and Jewitt said some savings are necessary for retention but overall everyone should gear towards national efficiency. But too much savings is too much of a lag on our overall battle efficiency.





Written by,
-Jewitt