Saturday, December 3, 2016

A Note On Trump Fanboys, Tax Credits and The Seen and Unseen

I really don't want to spend too much more time on this but, having knocked out their other avenues of defense, Trump fanboys are resorting to a favorite pastime of the Left, closing their eyes to the full consequences of an economic situation.

I post this comment as evidence:
Although I hate arguing technical policy-wonk crap, here you have one deal with Carrier that actually preserves part of their tax base and prevents a larger tax-burden shift than would happen if the company left the country (and we all agree the government shouldn't be taxing anyone, but this is relative you the burden-shift argument you're making).
This is just utter nonsense. First, if Carrier moved to Mexico air conditioners would be cheaper for everyone in the United States. Why isn't this considered as part of the full equation and not just the "tax base"? But secondly, the commenter makes the hidden implication that the Carrier workers wouldn't be able to find new jobs, thus shifting the tax burden from these workers. This is simply a denial of basic supply and demand economics? Markets clear, including labor markets. That Carrier would have a labor advantage by moving to Mexico implies that in the United States other firms are bidding higher for the Carrier workers so that Carrier can't lower wages because the workers would go elsewhere.

My main point here is that it really gets wacky arguing "technical policy-wonk crap." There are implications from many directions. The best route is to generally (there may be exceptions)not support new tax credits which are generally done for the benefit of some crony and distort the economy (although as I outline, technically, a tax credit could be a tax cut if it does not distort the economy, see my socks example). In the Carrier case, it was not a crony capitalist that wanted the tax credit but a Banana Republic style leader who wanted a photo/crowd op. It benefitted no one else. Carrier didn't want it and was pushed into the "deal." That is really an off the wall thing to support.

That said, I come to a second commenter Matt@Occidentalism who claims:
You have supported this before, so it is now Wenzel vs Wenzel.
The commenter has a reading comprehension problem or purposely blurs  the point I made about new tax credits versus those already in place. Indeed. I made the point that there are different ramifications for a multiple of different tax credits. Some distort the social fabric, like education tax credits which must be always demanded to be torn down. Others distort the economy but in the short-run would result in greater disruptions if the tax credit were removed. If we remove the tax credit in my alligator belt example, it is going to do little more than just shift workers from making alligator belts to making other types of belts. It's not a pure deal but there is little to gain from removing such a tax credit. In other words, it is not Wenzel vs. Wenzel but rather new tax credits and some existing kinds of tax credits versus other tax credits. In other words, it is much deeper than Matt@Occidentalism posts.

But government policy technocrats just love this kind of debate because they know the more complicated  they make the transaction the more people they will confuse about what is really going down.

I can recall in the 1980s when Murray Rothbard and I were discussing Ronald Reagan's tax "cuts" which were also eliminating many real estate tax shelters. We both thought it was just a scam since the government take was going to be the same (if not go up some) because of the elimination of the tax shelters. Neither of us, I'm sure, were in favor of preferential tax deals for the real estate sector because there is something special about the real estate sector. But more than playing around in this orgy of tax technician minutia, we just wanted real tax cuts across the board from the current base. There is a difference between implementing a special tax credit and ripping one down once it has been absorbed into the economy, especially when it benefits a broad base.

Rothbard discussed what Reagan was up to in a 1987 private memo to Mises Institute members:
One of the few areas where Reaganomists claim success without embarrassment is taxation. Didn't the Reagan administration, after all, slash income taxes in 1981, and provide both tax cuts and "fairness" in its highly touted tax reform law of 1986? Hasn't Ronald Reagan, in the teeth of opposition, heroically held the line against all tax increases?
The answer, unfortunately, is no. In the first place, the famous "tax cut" of 1981 did not cut taxes at all. It's true that tax rates for higher-income brackets were cut; but for the average person, taxes rose, rather than declined...
Not only were taxes increased, but business costs were greatly raised by making business expense meals only 80% deductible, which means a great expenditure of business time and energy keeping and shuffling records. And not only were taxes raised by eliminating tax shelters in real estate, but the law's claims to "fairness" were made grotesque by the retroactive nature of many of the tax increases. Thus, the abolition of tax shelter deductibility was made retroactive, imposing huge penalties after the fact. 
Government tax credits, like government trade deals, are a trap designed by government technicians  to confuse. Just like the Federal Reserve is designed to confuse about its fundamental purpose: printing money for the benefit of the government.

The focus should always be on tax cutting from the current base. We should always be suspicious of new tax credits because although they can be a general tax cut, they are most often just a crony deal for the benefit of insiders.

But once tax breaks of some sort are in place, such as interest rate deductions and accelerated depreciation, reversing these tax cuts will damage many in the economy (not just cronies) who based their decisions on this tax structure. Again, the solution is to cut and cut taxes from this structure so that the deductions become insignificant because of overall low taxes.

There are, however, a small set of tax credits, and the like, that must be vehemently objected to because of the manner in which they play a significant role in altering the nature of society--even if they are already established. Educational tax credits come to mind as an example. The last thing we should want is the government involved in picking and supporting some educational institutions over others.

-RW

23 comments:

  1. The delusion of Robert Wenzel runs deep.

    "But secondly, the commenter makes the hidden implication that the Carrier workers wouldn't be able to find new jobs, thus shifting the tax burden from these workers. This is simply a denial of basic supply and demand economics? Markets clear, including labor markets."

    What market are you talking about, Robert?

    You've essentially created an alter-reality where the labor market in the US is somehow "free" (that is to say, without government intervention) to prove all your other points.

    This is very typical of you, and many other Austrian/Libertarians. Your theoretical framework tells you that something is some way, but you never understand that your theoretical framework is just that--theoretical. It does not exist in real life. To base your argument on an absolute non-reality is to build your argument on a notion, a dream, a figment of your imagination.

    The rest of us are out here in the real world, not founding our entire arguments on the way things "should" be.

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    1. That’s so right! Austrians NEVER bother to understand HOW THINGS REALLY ARE! Mises never wrote “Human Action” chronicling and critiquing EVERY form of violent intervention in the market. Rothbard never wrote “Power and Market” detailing the three forms of violent intervention, autistic, binary and triangular:

      https://mises.org/library/power-and-market-government-and-economy

      This anti “free trade” stuff sounds a lot like Keynesianism. People peacefully buying and selling goods and services somehow causes “the economy” and the entire society to have a grand mal seizure simply as a result of people being free to engage in free exchanges. They need a Fearless Leader to fix things! Good and hard! Those same citizens, being oblivious to the wreckage they are causing, are still somehow smart enough to elect their Fearless Leader who has the wisdom and benevolence to centrally plan society and make those bad austerity and free trade cooties go away. And all without any additional costs or trade-offs.

      Delete
    2. @Phillip Martin,

      -- What market are you talking about, Robert? --

      He's talking about that market made by individual humans of will, Phillip. That market which makes authoritarian Trumpistas suspicious. THAT market. There's no other.

      -- You've essentially created an alter-reality where the labor market in the US is somehow "free" --
      You mean workers are, instead, slaves?

      -- (that is to say, without government intervention) --

      Oh, don't tell me! And the solution to that is... 'Moar' government intervention!

      Amiright? Right?

      -- you never understand that your theoretical framework is just that--theoretical --

      Because we're talking about real "American Workers"(TM) and not theoretical people with minds of their own, right Phillip?

      You're being ridiculous, Phillip. That's a cop-out. Sure, theoretically, in a completely free market, markets clear at price X. But markets still clear even in a market where government intervenes, just not at price X. What exactly is your point, anyway? That we cannot assume those workers are smart and thus need the help of El Señor Presidente?

      -- The rest of us are out here in the real world, not founding our entire arguments on the way things "should" be. --

      You're irony-impaired. Wasn't the whole Carrier deal derived from the notion that those jobs "should" stay in Indiana rather than moving to Taco-land?

      Trumpistas are such funny bunch.

      Delete
    3. Your argument lost air at "market made by individual humans of will,"

      There is no such thing anymore. The propaganda runs so deep we have Trump because of rampant stupidity. Unfortunately it shoots to hell any fantasy market you may believe in.

      There is nothing left except a monpopoly driven oligarchy where companies chase the profit with no thought outside the dollars.

      Lets abandon consumerism and embrace some third world cost of living deflation!! See how that wuits people. People in the street need to punish corporate greed and until that happens I say take your wins where you can get them.

      Delete
    4. Francisco Torres: I love the fact that you responded.

      The only thing I have to say is that you are wrong. Markets that have government intervention DO NOT CLEAR. government intervention creates either surplus or shortage. When you say "But markets still clear even in a market where government intervenes, just not at price X. " you show just how bloody ignorant you are.

      The rest of your comments are not worth responding to.

      Delete
    5. @Shegottawideload,

      ---There is no such thing [a market made of individuals of will] anymore. ---

      So it's made of robots?

      --- There is nothing left except a monpopoly driven oligarchy where companies chase the profit with no thought outside the dollars. ---

      You mean companies should NOT think about makung money?

      It's official now: Trumpistas are socialists.

      Delete
    6. @Phillip Martin,

      -- The only thing I have to say is that you are wrong. --

      Well, I'm not, and I will show you why.

      -- Markets that have government intervention DO NOT CLEAR. --

      Yes, they DO clear. You seem not to want to regard The Market as the result of all interactions between individual humans of will who are self-interested. All these individuals seek to improve their own lot even when facing government intervention. Thus markets will clear at a given price. What will not happen is the market clearing at the free market price sans interventions but that does not and cannot translate to "markets do not clear." That's preposterous.

      -- government intervention creates either surplus or shortage. --

      Not necessarily. You're equivocating here, Phillip. You're using "government intervention" too vaguely. *Price controls* will lead to shortages and surpluses but *price controls* are not the only form of intervention from the government and not all interventions cause shortages or surpluses.

      Besides the above, what exactly are you arguing? Are you arguing that Robert is simply wrong, or that he's wrong about tax incentives, or that he's wrong about all markets and thus should not question El Presidente Trumpo's wisdom? You actually did not present anything resembling an argument, Phillip. Mostly, you accuse Austrian economists of studying and theorizing about something besides reality, a completely baseless assertion.

      -- When you say "But markets still clear", you show just how bloody ignorant you are. --

      Oh, sod off. Calling me ignorant while making this appeal to some "reality" only you seem privy to has to be the highest level of chutzpah one can fancy.

      Delete
  2. Vice president-elect Mike Pence made it known to everyone the kind of policy the new government is going to follow when he said that "The free market has been sorting it out and America is losing."

    So if you think we had decades of crony capitalism, get ready for true fascism. You just had a little taste of it.

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    1. That is my greatest fear w/r/t Trumpussolini. He will make things far worse.

      Delete
  3. Since Keynesians and protectionists are such know-it-alls (compared to us regular peons), how do the protectionists determine what, if any, goods and services should be imported and which ones should be made here*? For each such item, are the victims entitled to 10 years of civil litigation to dispute the results? Who pays their lawyer? What’s the standard of review? What counts as clearly convincing evidence? Who decides that?

    *And where’s “here”? Detroit or Mississippi?

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  4. I'm a little torn on this one. On one hand I'm 100% with you guys that this reeks of cronyism and will cause economic distortion. But on the other hand I feel like it's a good thing any time a producer is able to escape state plunder.

    It'll never happen, but would be great if Trump would actually generalize this case and figure out that the way to "bring the jobs back" is to reduce the tax and regulatory burden on EVERYONE, not just Carrier.

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    1. Unless Ivanka implants that idea in his head it will never happen.

      Delete
  5. "This is just utter nonsense. First, if Carrier moved to Mexico air conditioners would be cheaper for everyone in the United States. "

    There's no reason to make that assumption. We would have to understand the market for these particular products. There may be no market reason what so ever for carrier to reduce the price of their products when they change manufacturing locations. If Carrier's current price point is competitive, maybe even already the lowest, and their current margin good, then this move may be to increase profit. Or the market price of air conditioners has already fallen and Carrier is reacting to it. We don't know.

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    1. @Jimmy Joe Meeker,

      --- There's no reason to make that assumption [that air conditioners will be cheaper]. ---

      There IS a reason: competition.


      --- We would have to understand the market for these particular products. ---

      Why would the air conditioner market behave differently than any other market of household appliances?

      --- There may be no market reason what so ever for carrier to reduce the price of their products when they change manufacturing locations. ---
      Who said anything about *reducing* prices? What Robert is talking about is cheaper air conditioners *compared* to others. What Carrier would seek is to keep prices competitive while maintainig the same profit margin.

      --- Or the market price of air conditioners has already fallen and Carrier is reacting to it. ---

      And this contradicts what Robert argues HOW, exactly?

      Delete
    2. Mr. Torres, how long have you been developing and manufacturing products? I ask because I have been doing this for a couple decades and have taken cost out of products many many times. Competitive pressures may or may not exist, which I made very clear. When there is no pressure to lower price, the price stays as it is. Cost reductions go to profit.

      Mr. Torres, here again you need to re-read. Robert wrote that air conditioners (in general) would get cheaper for americans. That is the price american customers pay from their local HVAC retailers. There is no reason to assume Carrier will reduce their prices after moving manufacturing locations. Odds are they will not.

      Do you have access to Carrier's internal costed BOMs? I doubt you do. You're guessing.

      "And this contradicts what Robert argues HOW, exactly?"

      It means that nobody outside of Carrier and its parent company know, just like I wrote before.

      Delete
  6. Phillip always seems to mention "the real world" in his tweets as if he lives in a different one from the rest of us. Tell us please, what color is the sky in this world you speak of. Because it sure ain't blue with nonsense like that.

    Let's recap your main arguments:
    1. Bobs world is imagined. ( ie not real. Therefore he's wrong.

    2. Bobs world is not the "real world" (ie its imagined) Therefore he's wrong.

    It seems to be very reminiscent of your previous posts. God I miss peak oil poet. Not because he made much logical sense, but at least he tried to make some sort of argument.

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    1. I wish this site had a like button. You would get mine.

      Delete
  7. Why is there a corporate income tax at all? Talk about market, pricing and labor distortions. That tax alone must cause more disruption than just about everything else put together. As a transition to a non-coercive government financing system a point of sale sales tax on everything should be considered. It would eliminate all other forms of Federal taxation. Transparent, adjustable, egalitarian and even the three martini lunch would get taxed. Ultimately of course, I favor no coercive taxes whatsoever, but there is 4 trillion a year going out that will never be cut to a reasonable amount without a transition period.

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    1. Problem is 10 years later they bring back the income tax and then we're stuck with both. I don't think we need to give the state yet another vehicle to plunder is with, even if it might be less destructive by some standard than some of its current depredations.

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    2. If we do not change something, nothing will change.

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  8. The Wenzel-Weld Democrats will never stop whining. They are getting close to CNN level.

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  9. Mexico has a regulatory advantage, not necessarily a competitive advantage. The USA has a lot of things going for it, including better infrastructure and higher productivity per worker, but there are regulatory burdens and overheads that hold US industry back, not to mention excessive taxation. This means that certain industries cannot do their manufacturing in the USA period. The tax credit is just a tax cut of money that belonged to Carrier anyway.

    Is taxation theft, or not?

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