Negative feedback loop is a technical term often associated with electronics and systems design. It’s purpose is to reduce the input by a signal of the output. When it is a loop, negative feedback quickly reduces the input to…zero or nothing. As long as there is output, the input will be reduced until there is no output. Wiki describes negative feedback as…
Negative feedback, which tends to reduce the input signal that caused it, is also known as a self-correcting or balancing loop. Such loops tend to be goal-seeking, as in a thermostat, which compares actual temperature with desired temperature and seeks to reduce the difference. Balancing loops are sometimes prone to hunting: an oscillation caused by an excessive or delayed negative feedback signal, resulting in over-correction, wherein the signal becomes a positive feedback.The terms negative and positive feedback can be used loosely or colloquially to describe or imply criticism and praise, respectively. This may lead to confusion with the more technically accurate terms positive and negative reinforcement, which refer to something that changes the likelihood of a future behaviour. Moreover, when used technically, negative feedback leads to stability that is, in general, considered good, whereas positive feedback can lead to unstable and explosive situations that are considered bad. Thus, when used colloquially, these terms imply the opposite desirability to that when used technically.
The point of negative feedback loops is that they can occur in more areas that just electronics. They can occur in various systems, social organizations and within people as a psychological effect. Aversion therapy is an example of the last item.
The most common use of negative feedback loops is for control—to prevent systems runaway or to manage oscillation in the system. When used in social organizations, negative feedback is used to control activity or behavior viewed as being negative. One example is aversion therapy to help folks quit smoking.
In this last case, aversion therapy as applied by government is usually—taxes.
However, implementers of negative feedback must be very careful how it is applied. The Principle of Unintended Consequences also applies if not taken into consideration as part of the implementation of negative feedback loops.
A fine example is California’s implementation of taxes on internet sales. California was broadened the interpretation of a SCOTUS ruling some years ago. The SCOTUS ruling was that taxes could not be applied on internet sales unless the seller had a physical presence in that state. When I buy from Midwest USA, based in Columbia, MO, I have to pay state sales tax on the transaction. When I buy from Amazon.com, I do not pay sales tax because Amazon has no physical presence in Missouri.
California has now defined independent affiliates doing business through Amazon as Amazon’s physical presence in California. Therefore, according to this new law, Amazon must collect taxes on those transactions by California affiliates regardless of the location, inside California or without, of the buyer.
Amazon made their response known today. Like they did when Illinois tried the same scheme, they’ve dropped all affiliates in California from Amazon’s network. Whatever California expected to gain from Amazon is now…zero. This is an application of the Principle of Unintended Consequences and of Negative Feedback.
When California passed their tax on the internet, the estimate of the taxes received was about $150 Million. This was in addition to the amount those affiliates paid in income taxes to the state. I heard an estimate on the radio this morning the income taxes paid by Amazon’s terminated affiliates amounted to some $120 Million into California’s treasury. The net result now will be substantially less that the total received before the implementation of the internet sales tax.
This internet tax is a consumption tax. A tax applied on the sale of a service or commodity. I mentioned that I do business occasionally with Midwest USA out of Columbia, MO. In fact I have an order on the way to me that should arrive today. The item was on sale by Midway USA at a price that, including the sales tax, could not be matched by other out-of-state retailers like Brownells based in Iowa.
The negative feedback imposed by Missouri’s sales tax is—I will always buy out-of-state, i.e., from Brownells in Iowa, or Natchez out-of-Mississippi, when the price of the item, when Missouri’s sales tax is included, is less than Midway USA.
Sales, or as they should be known, consumption taxes, in all forms, are negative feedback loops. My home county some years ago, imposed a county sales tax and in doing so, disallowed all other forms (other taxes/levies) of revenue. The Principle of Unintended Consequences has occurred. With the state of the economy, people are much more careful in their spending. Money is only spent on those essentials and if they can buy something cheaper, say in the neighboring counties, or in Kansas, that’s where they will make their purchases—not in my home county.
That makes revenue projections for the county difficult to say the least. County revenues are dependent on the mood of the residents, and of their prosperity. When both are down, county revenues drop. The county must then entrench, cut expenses, either by headcount or services. This affects the mood of the residents more and they entrench too and are more careful with their spending, reducing discretionary spending more.
The county sales, their consumption tax, is a negative feedback loop.
I hear so many claim that a consumption tax, the so-called “Fair Tax” is something we should impose on a state-wide and national basis. The assumption is that income taxes would be removed.
Ain’t gonna happen.
At the state level, Missouri like many, has both a state sales/consumption tax and an income tax. At the federal level, we have an income tax. That tax was authorized by the 16th Amendment to the US Constitution. If we wanted to replace the federal income tax with a national consumption tax, the 16th Amendment will have to be repealed or we will end up having both—a national sales tax and a federal income tax. The repeal of the 16th Amendment will not happen. Too many in Congress and too many in the states are dependent on the revenues from the federal income tax.
It ain’t gonna happen.
I don’t have any real issue, other than the tax rates and the complexity of variances, credits and deduction, with an income tax. I tithe 10% to my church. I view income tax as a tithe to the government. My preference would be a flat tax on everyone with no variances, credits nor deductions, no minimum income exclusions, no additional penalties on high income earners either.
What I do have issue with is the complexity of the progressive implementation of that federal income tax. Progressive taxation is another example of negative feedback loops. New York, the Northeast and California has the most repressive progressive income tax laws in the country. Each time they change or impose a new tax, the revenue gained is less. People are voting with their feet, going to other states where the repression is less, where they can keep more of what they have earned.
Whenever government considers changes to revenue methods, they must always be aware of negative feedback loops. And, too, of the Principle of Unintended Consequences.