Monday, March 24, 2014

Cato: Trying to Get Your Tax Bill Reduced Is Crony Capitalism

There is a lot of crony capitalism in and around Washington D.C., but trying to get your tax bill reduced is not crony capitalism. It is trying to get a bit of the government off your back. A direct tax credit is a tax reduction, pure and simple. It is a way to get a small part of government off one's back.

David Boaz, executive vice president of the Cato Institute, doesn't seem to get this. Mark Perry sets the scene:
A few weeks before the second season of “House of Cards” debuted online, the show’s production company sent letters to Maryland House Speaker Michael Busch and Gov. Martin O’Malley making clear they could film elsewhere if the debate over the state’s film tax credits didn’t end well.
Boaz not only objects to HOC's production company attempting to get a direct tax reduction, but  bizarrely calls this rent-seeking, crony capitalism and views it as damaging to other taxpayers. The fact is though that it is not  rent-seeking, crony capitalism nor directly damaging to other taxpayers--unless ones view is that the absolute revenue that a government must squeeze out of its taxpayers is fixed and that relaxing taxes on one group must result in increases on taxes of others. BUT only a serious statist would think that a tax cut for some means taxes have to be raised on others. What about reducing government to compensate for a reduction caused by direct tax credits?  It is very hard to see how Boaz's view can be considered anywhere close to libertarian, even though Cato Shrugged likes to pretend it is a consistent advocate of liberty.

A concern about a fixed absolute revenue stream for government is not a libertarian position.

Here's Murray Rothbard on tax exemptions (Chapter 4 of Power and Markets):
Many writers denounce tax exemptions and levy their fire at the tax-exempt, particularly those instrumental in obtaining the exemptions for themselves. These writers include those advocates of the free market who treat a tax exemption as a special privilege and attack it as equivalent to a subsidy and therefore inconsistent with the free market. Yet an exemption from taxation or any other burden is notequivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellow men; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellow men, the other is not. For in the former case, the grantee is participating in the acquisition of loot; in the latter, he escapes payment of tribute to the looters. To blame him for escaping is equivalent to blaming the slave for fleeing his master....
It is clear that if a certain burden is unjust, blame should be levied, not on the man who escapes the burden, but on the man or men who impose it in the first place. If a tax is in fact unjust, and some are exempt from it, the hue and cry should not be to extend the tax to everyone, but on the contrary to extend the exemption to everyone.


  1. Trying to get your tax bill reduced isn't crony capitalism... It's survival.

  2. "BUT only a serious statist would think that a tax cut for some means taxes have to be raised on others." I don't get this. If the government cuts someone's taxes or gives them a subsidy, then somebody else has to make up the government's loss of money because they will never cut spending. Thinking this has nothing to do with being a statist.

    1. Cutting someone's taxes are different from "giving them a subsidy". You just co-mingled two different issues.

      Giving someone a subsidy means taking tax money and handing it over to other people. Cutting taxes is simply that...the government could make do with less, raise taxes(which isn't always easy for them to do), or print money(if it's the Feds).

      If you remove the "subsidy" comment you made(which you should, since it is different), your answer is in the above Rothbard quote.

    2. No, tax expenditures are a subsidy. Most of the govt subsidies are in the form of tax expenditures. A depreciation deduction is a subsidy. Special treatment for capital gains is a subsidy.

      You're simply defining subsidy to suit your conclusion. A subsidy does not only mean govt payment and never has meant that. Maybe you need to look up the basis for the Boston Tea Party. The colonists dumped tea because the East India Tea Co. was receiving favorable tax treatment. The nation was built on protesting this kind of nonsense.

    3. So if Mega-Widget Corp pays $1,000,000 in taxes but through cronyism gets an $800,000 government grant that's a subsidy. But if Mega-Widget Corp through having access to the right people negotiates $1,000,000 in taxes down to $200,000, that's just a fair and square tax break?

      All I am seeing is semantic difference. That negotiation isn't open to everyone, it's only for cronies, just like the grant of taxpayer funds.

    4. " A subsidy does not only mean govt payment and never has meant that."

      You truly are a half wit sometimes Jerry. Definition of "subsidy":

      "Monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest."

      I'll look up "favorable tax treatment" if you buy a dictionary.

  3. Today's taxes are often structured such that cronies don't pay and everyone else does. That is they aren't really tax breaks as cronies aren't intended payers of the taxes in the first place. The taxes themselves are simply penalties for not being a crony. You cannot negotiate lower taxes for yourself without access to the right people. So having a system where taxes can be negotiated by some and not others is effectively cronyism.

    In such a system taxes become tools to limit economic opportunity to the cronies. And that is by definition crony capitalism. In this case it is just done in such a way that people don't think of it as such.

  4. I wouldn't call being allowed to keep your earnings a subsidy. You do the work, you earn the money , it's your money. But going to government to have tax exemptions so narrowly crafted such that you, or a select few, are the only ones that benefit, and specifically to the detriment of your competitors, I would call crony capitalism.

    Was HOC lobbying to have film production tax credits for everyone that makes films in Maryland, or just themselves? I think the pending bill was for the former, although HOC was the biggest beneficiary.

    Nevertheless, tax exemptions suck, too. It gives government too much power. We should be promoting lower taxes in general, not for performing some government sanctioned behavior.