Americans should expect to be bombarded with all of the same old myths about the evils of tax loopholes, the alleged imperative of “tax fairness,” and the desirability of “revenue neutrality.” All of this rhetoric merely masks the fact that taxes will be going up, making citizens poorer and the economy weaker, while the state continues on as one gigantic, overbloated parasite. [Full Article]
Source link: http://archive.mises.org/2737/more-loophole-lobbyists-please/
More Loophole Lobbyists, Please
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I’m not quite sure I follow this one. If one believed in a minarchy, then one would necessarily believe that some taxation is necessary for the government to operate. In that case, one would most likely argue that that everybody should be taxed fairly and equally, and not grant tax privileges to some people. They would be unhappy with differences in the tax code, bemoaning the fact that some people pay too little and others pay too much.
However, if one was an anarchist libertarian, then any tax loophole would of course be desirable, but nobody paying taxes would be the most desirable situation. After all, one wouldn’t want to be trapped into saying that taxes are necessary so that tax loopholes can exist!
Michael Clem,
If what you seek is a tax that is fair, and you presuppose that the primary activity of a government is the production of defense which all enjoy in equal measure, then what you seek is a poll tax — a tax that would amount to equal amounts per person per year. This “regressive” tax is precisely the opposite of the highly “progressive” tax we now have. Rothbard has a great discussion of different tax schemes in Power and Market.
The key point to be made is that for those who seek a regime of lower taxation, mere “simplification” of taxes is, historically, linked to tax increases, not decreases. The classical liberal fights for lower taxes, and perhaps even more importantly, lower spending by government — we have to keep our eye on the ball.
I enjoy Mr. DiLorenzo’s works very much. There is always little chance of misunderstanding his meaning:
“…either incredibly naïve…or they are duplicitous liars.”
Ah, the joy of well used English. This could be the most consistant pleasure in the works hosted on Mises.org: The quality of the language used.
I think it’s worth repeating Ludwig von Mises’s entire quotation on the question of loopholes:
Ludwig von Mises’s comments at a conference on inflation and war, White Sulphur Springs, West Virginia, April 5-8, 1951, sponsored by the University of Chicago Law School (organized by Walter Blum, Milton Friedman, Wilber Katz Edward Levi, W. Allen Wallis, and Aaron Director), reprinted in Defense, Controls, and Inflation: A Conference Sponsored by the University of Chicago Law School, Aaron Director ed., University of Chicago Press, 1952, pp. 107-110, 115-116, 331-334.
As the colonies formed states, they adopted the English system. They had governors appointed by the king and “parliaments” composed of the wealthy landowners and businessmen. But in their progress to independence, they determined to create a new, “socially-egalitarian” – and kingless – structure, one more appropriate to a nation of free and sovereign citizens.
Even before the peace treaty with Britain was signed, Thomas Jefferson opined that “the majority of the men in the State [Virginia] who pay and fight for its support are unrepresented in the legislature, the roll of freeholders entitled to vote not including generally half of those on the roll of the militia or of the taxgatherers.” [In his "Notes on the State of Virginia" (1782)]
29 years after the Constitution was adopted, Jefferson complained “And also add that one half of our brethren who fight and pay taxes, are excluded, like Helots, from the rights of representation” and two months later [July 2, 1816] “Let every man who fights or pays exercise his just and equal right in their election.”
20 years after that, Lincoln parrotted Jefferson: “I go for all sharing the privilege of the government who assist in bearing its burdens. Consequently, I go for admitting all … to the right of suffrage who pay taxes or bear arms.”
Finally, the idea that every person who helps bear the burdens (costs) of government has earned the RIGHT to the elective franchise was finally accepted by Americans.
In the real (physical) world, there is always a “backside” to EVERYTHING that exists, and that backside generally “counterbalances” the “frontside.” Even when speaking of ethics. The “backside” to Jefferson’s sociopolitical principle is that those people who do NOT contribute their fair (equal) share of the COSTS of government (taxes, military service) should NOT share in the elective franchise, because they have not EARNED it! They have NOT “paid their dues”!
So, when crass political demagogues were able – in the 20th century – to enact laws bestowing the elective franchise on citizens who do NOT help meet the costs of the government, America’s avalanche slide into socialism began (and became an avalanche). Look at what state socialism did to the once powerful Soviet Union (and all its little satrapies). Think of what would happen if ONLY people who paid the taxes were able to vote!
So what about a new loophole tax deduction for a racial group? Much if not the most significant means to achieving politcal power comes from creating arbitrary divided groups. Classic divide and conquer. The State’s wickedness is multiplied by such discriminating application of power. It quiets dissent from those not yet affected and allows for the peicemeal implementation of socialist policy.
If all tariff rates were to be qualified as law, they would have to be the same rate for every good, without exemption. The income tax rate would have to equally apply to every dollar of income no matter how many dollars were in question.
The argument against confiscation will be much simplified, and more politically feasible, when it is not tainted with perceived special interest exemptions. While seductive, the argument for loopholes is an argument against the rule of law. It ensures the politically feasible maximum punishment against minority groups rather than the politically feasible minimum punsihment against all equally. Hence, the libertarian argument remains tarnished with perceived “big business/coprorate” favoritism.
So if a loophole is held to be ok for a racial group, or any non-universal entity whatsoever, then it must necessarily follow that the reverse of the loophole is just as ok. Requiring the universal applicability of the rule of law is necessary for any attempt at salvaging the United States from the chaos the political class has wrought upon its citizens. While that might involve short term pain of increased theft endured by some groups it is the best long term bet for restraining and cogently attacking the head of the beast of State interventionism rather then repeatedly attacking its latest ever regenerating tentacles.
rtr,
First, let’s start from the clear and self-evident statement (at least to me) that all taxes are robbery. Now, as the State is a criminal organization engaging in this crime, what is the best thing to be done? To eliminate the State’s crime as quickly as possible. I think you are wrong whehn you say that loopholes go against the rule of law. Taxes go against the rule of law. Loopholes just specify a few situations where the State won’t rob you.
If tomorrow a law were proposed exempting all women from any form of taxation, I’d be for it. If it was a law exempting all men from taxation, I’d be for it. If it was one exempting all blacks, caucasians, asians, or natives from taxes, I’d be for it.
Now, tomorrow, if a new law were proposed that would add a tax that women have to pay, I would oppose it. If it were to add another tax that men have to pay, I’d oppose it. If it were to add another tax that asians, caucasians, blacks, or natives had to pay, I’d oppose it.
The argument and principle is very simple and clear-cut. Taxation is robbery. Any net reduction in taxes is to be supported; any net increase in them is to be opposed. Furthermore, the introduction of any new form of taxation must be opposed; likewise, the elimination of a new form of taxation must be supported. Having more forms of taxation makes it more difficult for people to keep more of their money.
I’d like to respond to the article of discussion, but before doing so, I think Mr. David Heinrich’s comment provides me a nice point from which to begin my arguement.
If the Constitution was followed – in spirit OR in original form (save w/respect to slavery) – I might be inclined to agree with Mr. Heinrich. Let us approve any tax cut, regardless of to whom the benefit flows. We all receive the benefit of a government less able to meddle, do we not? Let us take the example of women getting a tax exemption, for which he said he would vote. Under a system of competitive federalism, if women abused this and banded together to vote tax increases (not neccessarily in toto, but the moral women might be cancelled out by “useful idiots” of the opposite gender), those gents not willing to submit could always flee to another state. The original federal government had no income tax.
Let us return now to the political arena in which we find ourselves. If we simply match one special interest exemption with another, I can see how one might THINK this would widdle down government slowly but surely. However, lets look at the POWER this gives to government.
First, not taxing one entity and taxing another IS a loophole when we consider that it alters the rate of exchange for which one will be willing to trade one line of work for another or trade one good for another (depending on whether the tax is on the income or consumption side, respectively). Do you want to government deciding what is “preferred,” because I do not! Not only do I not WANT them to, but because of the limited epistemology we collectively hold, already much pointed out by Hayek (to whom I should also give credit, in The Constitution of Liberty, for illuminating the woes of tax preferences), there is not a government capable of such planning. Tinkering at the margins is a practice that eventually enslaves us all slowly but surely.
Second, at what point did some libertarians decide the ends justifies the means? I thought that excuse belonged to their counterparts. The fairness which Dr. DiLorenzo deplores is not equality of outcome, or even equality of opportunity, but merely equality under the law! Since we cannot know the outcome of our actions, should we not all submit to the same law, and to the extent we’re not willing to, have no law. Now I’m all for having no federal law on many things, committing matters back to the states, and watching as those states wishing to attract labor and capital eventually realize no law period in many areas is wise. In the interim, while so much spending exists at the federal level, I do not want those who have the best lobbyists to prosper.
What’s wrong with those who can afford a tax cut receiving it, one might ask? The government IS NOT a market! The article decries the policies of the Reagan Era, but apparently the NIXON ERA is just fine! Lets not forget, while Nixon raised federal spending, he gave a gargantuan tax deduction; vis: The Earned Income Tax Credit. Millions pay NO income taxes, and that credit definitely had a lot to do with the number being as high as it is. What do those individuals now do? I’m willing to bet that in larger numbers that tax payers, they vote for government programs. You are creating a class of people more willing than they would have been otherwise to vote for MORE government spending every time you advocate lopsided taxation.
Finally, this brings me to the point at which Mr. Heinrich & Dr. DiLorenzo converge. Lets say for a moment we vote for every tax exemption we can. Allow this to play out to its logical conclusion. Who can’t afford a lobbyist? The individual who is frugal, ignores the government, saves, and just tries to do a decent job raising his family, following the moral traditions that led his family to success. Under Hayekian Cultural Evolution, the group I describe will probably (though we can’t predict the future) succeed. Under this plan, he’s more schackled with taxation than ever, because while he gets no special exemptions, you can bet those that do still use government programs of which the aforementioned group has never heard, yet continues to support.
I believe here arises the error in reasoning. Some of us are starting from minarchy to evaluate the benefits of policy. We must start where we find ourselves, and use the ideal of limited government as the goal, not the starting point. If the policy moves us closer, let us adopt it. If it moves us away, let us reject it. A flat tax binds the governments hands. Now, as to how we keep the cuffs on when they hold the keys, I’m open to suggestions.
First, I’d like to clear up some ambiguities. I’m not making a utilitarian argument. I’m making an argument based on natural rights. Taxation is robbery. Systematic Statism is slavery. War is murder. Inflation is theft. I’m an anarcho-capitalist (not a minarchist, though I respect minarchists), and would support the free market, no matter what the conditions are.
Thus, as I see all State intervention in the free market — including war, taxation, inflation, price-regulations, safety-regulations, wage-laws, etc — is criminal, and should be eliminated as quickly as possible. When a situation of mass robbery, mass slavery, and mass murder exists, I don’t see much point in arguing about the most moral way to eliminate it. In fact, there is only one correct answer in my mind: to eliminate it ASAP.
Now, I’ll confess to being rather miserly (I prefer to consider myself a miser in the first definition of the word, not the second). My friends joke with me about it. However, I don’t hold anything against the person who’s not so miserly. If it’s most likely that big spender swill benefit most from tax-elimination, so be it. I’m making a moral argument that it’s best to eliminate it ASAP. When I see that someone gets a tax-deduction that I don’t get, I don’t think “they shouldn’t get that”; I think, rather, “They should get that, and so should I!”
One of the biggest myths surrounding tax breaks is that they are subsidies. They are not subsidies at all, however. Subsidies tax one group to subsidize some other group’s activities while tax breaks just let people keep their earnings. The former distorts the market, while the latter allows the market to take its natural course.
I concurred with Mr. DiLorenzo’s article. However his wording appears to say that *any* form of direct taxation is based on the premise that the state has a right to all income that is produced.
I do not know whether he meant this, and if it includes Murray Rothbard’s recommendation for a head tax. However, if that is his meaning, it would help for him to say whether the government should be funded, and if so, by what means.
I’m all for reducing taxes (through lower rates, loopholes, etc.), but let’s be honest and clear about items like the supposed Bush tax cuts. They are not tax cuts at all, but deferrals of taxation. Since spending was not cut to go along with them, additional borrowing was required to provide the necessary revenue to fund the bloated federal budget. Unless the USG defaults, this additional borrowing (principal and interest)will be repaid through future taxation and inflation. In other words, you can pay me now, or you can pay me later.
Let’s stop kidding ourselves with the idea that tax cuts (in whatever form) without restrained spending are a laudable policy goal.
bkMarcus writes: “Think of what would happen if ONLY people who paid the taxes were able to vote!”
May I suggest the following slogan: “No Representation without Taxation!”
Another excellent piece by Mr. Di Lorenzo. The bait and switch behavior of government is particularly insightful. Any business that engages in this practice is not in business for long, while governments can repeat this behavior with little outcry from the citizenry. Much of the blame for this can be placed squarely on our government schools, which have fared miserably in their true mission, but have apparently succeeded in creating a society that is easily duped by government rhetoric.
I just want to point out a fallacy in what Steven Kane said; viz: “The former [subsidies]distorts the market, while the latter [tax breaks]allows the market to take its natural course.”
Both can distort the market if they are the product of “partial legislation.” If I levy a 33% income tax on sole proprietors, but give a huge tax credit to those who use the eco-left’s latest craze (say, ethonol), then I have just made it more profitable to use sole proprietors using that source of energy in their business. In a free market, if the marginal benefit of switching to ethonol did not exceed the marginal cost, then we should still use conventional energy sources.
This is why Hayek advocated (in The Constitution of Liberty) that taxes should be income proportional so that all jobs have the same attractiveness or unattractiveness they would have had if the government had never levied a tax. Thus, the free market and the actors in it decide what jobs are available, and, accordingly, what goods are offered (freedom of choice in employment and consumption were very important to him, so this was not an intellectual anomalie).
Finally, my Economics professor gave a great example of a bad tax credit (though that wasn’t the point of his story, his point was to advocate a change to a better one). The government gives tax breaks to businesses that provide health insurance for “workers.” Now, if those selling their labor were buying their own health insurance, they could sort themselves into the risk pool right for them. Some might want high deductables w/catastrophic coverage. Some low deductables. Some might want NO HEALTH INSURANCE, and that should be fine. After all, what about those who don’t believe in medicine for religious reasons. Those that would rather invest in education, take the risk of not getting sick, and take health coverage after they have a degree and a better career? Corporations would never meddle in our lives like this if they didn’t have a tax incentive to do so. They don’t buy our car insurance, even though its not economical for laborers to call in with “my car won’t start.” (I say this because some argue that the corporations would voluntarily buy health insurance for “healthy workers.” Wrong, they’d pay those that took responsibility for their health a wage sufficient to keep them on the payroll). If this tax credit were on the labor-side, great. If they could count a neighborhood friendly society’s insurance dues, even better! (See the Voluntary City for how it used to work.) But the current tax credit distorts market signals, incentivizing meddling, destracting the corporation from concentrating and specializing in what it should, and is immoral from the standpoint of a free market.
Just so we’re clear
Thank you for reading.
Couldn’t it be possible to be in favor of tax simplification AND reduction at the same time?
I object to paying taxes for government largesse, but I also object to paying for lawyers to jump around the system to avoid paying taxes. I see no reason that either one should get much of my money, given a well designed system.
JBP
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