All Over The Map On Taxes | iStockAnalyst.com

If you tax something, you get less of it.

This simple premise underpins many criticisms of governments' attempt to rejigger taxes, generally applied to upward moves. While it's no doubt simple to grasp, politicians frequently seem to struggle with the concept. But politicians globally often seem equally challenged in understanding exactly what they're taxing?and their moves' potential implications.

Friday, the US House of Representatives voted to approve extending the payroll tax cut through 2012's close. Presuming President Obama signs the bill (likely), this means the 2% reduction in payroll taxes will remain in place. While we're in favor of the move?permitting consumers to keep more of their cash is economically sound?we'll not overstate the impact. It's a very minor positive. And a US-specific one at that, meaning the global impact is still smaller.

Fears of major deleterious consequences on consumer spending arising from a potential reversion to higher payroll taxes were overwrought from the get-go. Reality is consumers being taxed less doesn't mean they'll actually spend more. After all, the move doesn't dictate you'll only get the income boost if you spend the funds. So when you tax incomes less, you don't necessarily get an equivalent consumption boost?some folks save, others pay down debt. But without doubt, a minor plus from the government is worthy of an attaboy.

Elsewhere globally, politicians' puzzling behavior on taxes continues unabated. Take Japan. Here's a nation still recovering from last year's massive earthquake and tsunami?a recovery that's progressed fairly nicely. And even before the earthquake, the Japanese economy wasn't exactly booming. Yet last night, politicians decided they could do with incrementally less spending?with the cabinet approving a doubling of national sales tax rates from 5% to 10%. A direct tax on spending when the government probably doesn't want to reduce consumption seems rather silly. And relatively speaking, a bigger silly move than America's small payroll tax jigger. And a regressive one. But again, thinking globally, even the impact of very silly tax hikes starts getting muted. The plan still needs parliamentary approval?and some seem to get the move is a headscratcher and are opposed.

The EU seems even more confused regarding taxation.

Source: http://www.istockanalyst.com/finance/story/5676130/all-over-the-map-on-taxes

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