Friday, July 10, 2009

Two strains of the Orwellian world view that all wealth actually belongs to the government...

First, from Jefferson County, Alabama, where the Courts have ruled that the local government's occupational tax and business license fee are invalid, the Center for Libertarian Press Information notes that the county faces the prospect of running out of money on 31 July. In a statement of rare, direct honesty, one County Commissioner indicates what she thinks is the essential service of government:

One Commissioner placed the priorities of the County government exactly when she said: “If we can’t make payroll, only the revenue department employees will be working, to collect taxes.”

Locally, one of our favorite liberal/progressive bloggers declares all tax cuts or credits to be government subsidies:

We are taking about the cost of business equipment — not retail items that get sold to a consumer. And that grocery store gets depreciation on its shelving — which reduces the tax bill owed. A subsidy. Not unlike the mortgage tax deduction. Or any other tax credit or deduction.

This is actually part of a fairly entertaining thread that started out about health care and ended up being a tutorial in things that some of our local blogging community do not understand about economics or accounting.

The basic underlying philosophy here is that the government--or the people--has first call on any wealth amassed by individuals or businesses, and that any of the money you are graciously allowed to keep for your own use is a government subsidy. This viewpoint does, inadvertently, have the honesty to admit that the current US tax code is a purely partisan political thing, wherein the government exercises its fiat power to reward certain political groups or encourage trendy pieces of social/economic behavior under the rubric of public policy.

It bears little resemblance to economics or accounting as actually practiced by professionals, but hey....

That's an understandable position, perhaps, when you select as a blogging handle a name that evokes "the archetypal character of someone whose prophetic insight is obscured by insanity" or "someone who believes that he or she can see the future but cannot do anything about it."

1 comment:

Miko said...

I'm going to agree that all tax credits and deductions are subsidies (but not tax cuts, of course).

Take the bailouts: government gave certain favored businesses large amounts of cash. Now imagine the same scenario, but instead of giving them the cash, the government had instead decided to retroactively lower the tax rates of these same favored businesses and give them a refund on previous years equal to the same amount of cash. Other than wordplay, how do the two scenarios differ?

Across-the-board tax cuts are a good thing and move us closer to a free market. Selective subsidies in the form of tax credits as bribes for engaging in state-approved behaviors move us further away from a free market, while simultaneously reducing government revenue and so making across-the-board tax cuts less likely.

The corporate income tax is one of the worst taxes imaginable (since it's passed along to consumers in the form of higher prices and so is strongly regressive, while also distorting production levels and allowing bigger firms to exploit government-created economies of scale to gain an unfair edge against smaller firms) and these forms of subsidies just make it worse: while a lower across-the-board corporate income tax rate would tend to lower prices, selectively lower rates from tax credits don't have the same effect (since the higher prices at non-favored firms tend to bring up prices at favored firms, similar to the effect of a tariff).