Monday, May 16, 2011

The Truth About Tax Credits

The Regressives,  joined by elements of the conservative soft right, are in deep angst over tax credits. The Regressives outright call them subsidies.

The soft right, led by Koch-funded, Americans for Prosperity, call it "the continued use of the tax code for...industrial engineering."

The Regressives by calling tax credits subsidies are simply wrong. The credits are a potential tax reduction and anyone in favor of lower taxes should be in favor of taxes reductions.

The AFP position is more complex, but still wrong. The purpose of the tax credit may actually be industrial engineering, but it is still better than having to pay a tax. If a corporation has the choice of A. paying taxes or B. paying taxes or investing in industry x, then option B, though extremely limited, is better than option A. What someone opposed to higher taxes should be doing is not squawking about a limited reduced tax option but looking to increase the option until it becomes a complete tax reduction without limitations. Among libertarians, Ron Paul is one who understands this and is in favor of tax credits. So what's behind the AFP's joining the Regressives on opposing this limited tax reduction possibility?

A friend inside the Beltway offers this explanation:
...this [AFP] effort against tax credits for alternative energy is lead by a group funded by an oil billionaire who hates and fears Ron Paul because he cannot control him and has an obvious interest in stopping the development of an alternative energy industry……


  1. Ever wonder why the regressives don't call out their own? Look at the Obama's tax return. The man will get a government pension for life and yet he takes full advantage of the SEP IRA by contributing the maximum of $49k to it. I understand that what was done is perfectly legal, but come on, if you are going to argue that others exploit loop holes in the tax code, at least don't do it yourself. Like everything Obama claims he stands for, he usually ends up doing what ever benefits him most regardless of how it compromises his integrity.

    Another example of regressives hypocritical position is calling out the oil industry for what ever tax benefits it is receiving while remaining completely silent on Obama's buddy's company (GE) that pays zero US income taxes. Exxon-Mobil last year paid out 44% of their profits in taxes around the world. They also paid taxes to the US Government and yet they are somehow exploiting the tax code. LOL.

  2. Bob:

    There are couple of schools of thought here. I understand your point that less taxes are always better for the individual, but tax credits always cause market distortions. They are almost always a result of successful rent seekers. In effect, they are subsidies, and given that the U.S. borrows trillions every year, all of us get hurt.

    Remember the cash for clunkers tax credit? That one hurt like hell. It had the effect of raising prices for new cars, caused the US to have a larger deficit and destroyed millions of perfectly good cars (thereby causing use car prices to rise and parts makers/sellers and mechanics to take a hit). It was hearbreaking to see millions of man-hours of productivity to just be destroyed. Here's a video of a perfectly good Volvo being destroyed:

    Here's Ron Paul on how destructive it is:

    What about a tax credit for broken windows? Will you support that?

  3. I think most people that read this blog are in favor of lower taxes, but tax breaks in the end do come down to social engineering by the government and do cause market distortions. A good example is the tax credit for mortgages that most likely played a small role in the housing bubble.

    And I worked at a car dealership during doing detailing when "cash for clunkers" was implemented. I saw first hand as mechanics poured a mixture of corrosive chemicals on the engines of cars to basically make sure they would never start again. Obviously tax credits don't often result in this type of destruction, but nonetheless they can be used for all sorts of reward bestowing for the sake of gathering votes.

    The solution is simple, eliminate tax breaks and lower rates across the board.