Wednesday, July 25, 2012

Another Libertarian Lightweight Running on the Coattails of Ron Paul

A Michigan campaign letter is out asking that contributions be made to help Kerry Bentivolio in his campaign to become the Republican nominee for Congress from District 11 in Michigan.

The letter references a media story that calls Bentivolio "Ron Paul on steroids." Yeah right. There is not one word on Bentivolio's web site addressing US empire building. Not a word on current US global military entanglements. Is he for them or against them? A real libertarian would have no problem clearly stating that the current foreign entanglements should be ended.

On the domestic front, Bentivolio is for "tax reform.":
Our tax code is too complicated and influenced by too many special interests. Plain and simple, we need a new tax code that is both fair and easy for ordinary citizens to understand. A flatter, broader tax code that does not favor those with the largest lobbying budgets should be a top priority in the next Congress.
A libertarian stance on taxes should always be for lower taxes, not simplified collection.

Here's is Murray Rothbard on these simplification scams:
...a flat tax appeals to the sort of academic who, regardless of ideology, likes to push people around like pawns on a chessboard. The great 19th-century Swiss historian Jacob Burckhardt called such intellectual social engineers "terrible simplifiers." The label applies beautifully to the legion of flat-taxers because one of their prime arguments is that they would replace our bewildering mosaic of tax laws by one of limpid simplicity, one that "you could make out on a postcard."

Unfortunately, this proposed simplicity is more child-like and naive than a great burst of clarifying intelligence. For our Terrible Simplifiers fail to stop and ask themselves why the tax laws are so complicated. No one likes complexity for its own sake. There is a good reason for the current complexity: it is the result of a myriad of individuals, groups, and businesses trying their darndest to get out from under the crippling income tax.

And, in contrast to the flat-tax academic who sneers at all other groups than his own as slaves of sinister special interests, there is nothing wrong with this often messy process. For these are people who, quite simply and even admirably, are trying to keep some of their hard-earned money from being snatched up in the maw of the tax-collector.

And these people have already found out what our flat-tax academics seem not to have cottoned to: there are things in this life worse than complexity, and one of them is paying more taxes. Complexity is good if it allows you to keep more of your own money.

In the name of sacred simplicity, in fact, our flat-taxers are cheerfully willing to impose enormous losses on a very large number of individuals and businesses, in the following ways:

RAISE the tax on capital gains to treat it like income, thereby crippling saving and investment, particularly in new and growing firms. One of the things that has kept the English economy from going totally down the tubes is that England, despite its cripplingly high income taxation, has no tax at all on capital gains.

ELIMINATE accelerated depreciation, thereby destroying an excellent 1981 tax reform that allowed businesses to depreciate rapidly and re-invest. This change will particularly hurt heavily capitalized "smokestack" industries, already in economic trouble.

ELIMINATE OR RESTRICT income-tax deductions for mortgage payments, plus treat homeowners as having a taxable income from "imputed" rent, i.e. from the rent they would otherwise have paid if they had been tenants instead of homeowners. This double blow to homeowners is so politically explosive that it will probably not go through--but such is the full intention of the flat-taxers. Unfortunately, those who are taxed on "imputed" income will not be able to pay their taxes in "imputed" form. They will have to pay Uncle Sam in money.

ELIMINATE oil depletion allowances, a neat way to send the oil industry into a depression. Flat-tax academics persist in regarding depreciation payments and depletion allowances as "subsidies" to capitalists and oil or mining companies. They are not subsidies, however, they are ways of permitting these firms to keep more of their own money, something which at least pro-free enterprise academics are supposed to believe in. Furthermore, only income is supposed to be taxed, and not accumulated wealth; taxing "income" which is merely the loss of capital value (either by depreciation or depletion) is really a tax on capital or wealth.

ELIMINATE tax deductions for uninsured medical payments or losses due to accident or fire. Does one get a glimmer of why economists are sometimes called "heartless"?


  1. Just wanted to say I love this blog.

  2. Rothbard either does not seem to understand the distinction between an accounting deduction and a statutory deduction or he chooses to ignore it. Deductions for depreciation or depletion are accounting deductions. They are necessary deductions because they represent a cost of doing business. You cannot determine net income until you have taken them into account any more than you can determine net income without taking into account the cost of goods sold.

    A deduction for home mortgage interest or medical expenses, however, is a statutory deduction. It has no relationship to the amount of income you actually earned. These deductions are somewhat analagous to social programs in the budget. They are allowed in order to alleviate difficulties that are unrelated to earning an income.

    But while depreciation or depletion related to the actual costs involved makes sense, allowing a 27.5% automatic oil depletion allowance doesn't make any sense at all. Sure, it saves the oil producer some money in taxes, but it can also lead to the drilling of dry holes for no other reason than to gain the tax savings. I fail to see how such a policy can make any sense from any point of view.

    The flat-taxers point out that if you reduce rates low enough, you remove the incentive for such wasteful loophole-related schemes even if you don't even bother to eliminate the loopholes. This is because loopholes are not free. They usually involve lost income. However, flat-taxers often also do not make the distinction between abusive accounting deductions and statutory deductions which have a more social purpose in mind.

    But one obvious fact remains, tax loopholes, whether they involve excessive accounting deductions or statutory deductions, are forms of government intervention. They are attempts to influence individual behavior. As a result, lower rates are less intrusive than loopholes.

    As usual, Murray Rothbard is presented as the last word on the subject in all matters on this web site. But Rothbard was not infallible. There are good arguments on both sides of this issue that do not violate Austrian economics or libertarian thought.

  3. I'll take the other side of the argument.

    I don't know whether Kerry Bentivolio takes this position:

    People cannot determine whether they pay too much when what they pay is hidden from them.

    A flat tax, whether on sales or income, makes clear what they pay.

    Resistance to paying too much is contingent on knowing precisely what is paid and what is received.

    Thus, a genuine flat tax all but guarantees the emergence of a strong constituency for reduced taxation.

    Example: My Federal Income tax - with all the deductions - worked out to about 7%.

    When all direct taxes are calculated (state income, social security - both employer and employee portions, sales tax, property tax) the real percentage is 48%.

    This says nothing about excise taxes which most never know they pay.

    This says nothing about compliance costs.

    The income-producers in this country do not know what they are really paying in taxes, nor precisely what they will get in return.

    There are already more than 50% of voters who live off handouts. Therefore no vote will free the enslaved producers.

    Only a 'John Galt' event is likely to curtail government growth.

    A 'John Galt' event is only possible if a majority of producers know they are enslaved.

    A Russian saying dating from the Communist Era:

    "We pretend to work. The Government pretends to pay us."

    Even a covert 'John Galt' event - where workers still pretend to work - will lead to the collapse of government spending and taxation due to insufficient production.

    Rothbard is not wrong generally. But he is wrong when he says that supporters of simplified tax schemes have not cottoned onto the PURPOSE of the complexity, or that there are worse things than complexity.

    Oh yes we have. The problem is that I cannot win the vote on what to do with the money I produced.

    The Government, and thugs generally, believe Chairman Mau, “Political power grows out of the barrel of a gun.”

    And I respond, "Political power shrinks with the economic power that bought the gun."

    But, I am willing to consider other options.

    Are you?

  4. While Bentivolio is not a Ron Paul, he is actually someone i am inclined to like, based on the little info i have on him.
    He certainly doesn't sound as wishy washy or unreliable as some of the other favorites of apologists (incl. Rand Paul)

    Seems like Bentivolio may actually be a good guy, as politicians go.

    Robert, his foreign policy views seem to be quite good. More information in the links below.

    There are more questions (for instance his take on the war on drugs), so we should certainly keep an eye on him. But i'm certainly more impressed than with Ron Paul's double-talking son.

  5. Everything you and Rothbard say against these "simplification schemes" is fair and just. Anyone holding up a fair tax/flat tax scheme as a panacea without talking about reducing tax revenues and government spending is no libertarian. But as a tax accountant, I might give one unmentioned advantage to the flat taxers.

    There are two aspects we should look at here: 1.) minimize the total amount of productive resources taken in by the government and 2.) minimize the total cost that taxpayers and businesses (the private sector) must pay to comply with taxes. Many people spend more on their tax preparers and tax departments than they do on taxes. Let it not be forgotten that the Big 4 accounting firms were the biggest lobbyists for Sarbanes-Oxley because it creates a ton more of billable hours in consulting and compliance for them.

    In this sense, "simplification" has a great effect for the private sector. Individuals and businesses don't have to pay a fortune for specialists to prepare their taxes or lobbyists to make a loophole for them. With a simpler tax code, accounting services would be much cheaper and more available for other purposes. All that misallocated human and physical capital in accounting, software, law, consulting, and lobbying would be reallocated to productive, wealth-creating uses.

  6. I generally agree with Rothbard on a great many things. In fact, he's partly right here, where he states that the reason why we have complexity is precisely because people want to escape taxes.

    I'm also with him where he points out elsewhere that he's not against tax breaks (which would be contrary to a flat tax) because he wants to give tax breaks to as many people as possible. .. and yet if we scale that principle out, of as much tax breaks, of as many kind, to as many people possible, to minimize their taxes regardless.. you end up exactly with a flat tax.

    The problem is that he only considers the target of flat tax advocates to favor the nominally higher rate, which is really a strawman. For example: "RAISE the tax on capital gains to treat it like income, thereby crippling saving and investment, particularly in new and growing firms"
    .. wait... what about LOWERING the rate on individual income to match that of capital gains? That's also a flat tax. Yes, it's possible to have a high flat tax, but by far most advocates favor a lower flat rate. Russia and Eastern European countries already use a low flat tax and the average salary earning professional not only has much less tax burdern but less stress dealing with taxes than their western european counterparts.

    Ideally we'd have 0 taxes. Not just on income, but everything else as well (so even American history did not escape taxation with excise taxes, tariffs, etc), and instead we'd just pay for what we use or anticipate to use, just like in the private economy.

    But failing that minarchist to anarchist goal, I'd go even beyond most flat taxers, who are really advocating marginal flat tax, and advocate a very low, full flat tax with no deductions on income only Just 5% at the very most, perhaps likely 3%. BUT just as importantly, make it voluntary. By that I mean you stop paying, services stop flowing. No criminalization. So someone or even a community out in the woods with their own water wells and their own septic system and their own guns may be just fine with no taxes at all.