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The Spending Code

By: Loren Heal (Diary)  |  April 14th, 2011 at 03:37 PM  | 

RESIZE: AAA

Barack Obama yesterday introduced us to the notion that the failure to collect taxes is actually government spending.  Tax cuts (or deferred increases) are just an alternate way for the government to spend money, because without the cuts it would otherwise get the added revenue. Actually the idea is as old as Caesar, but it was jarring to hear it so seamlessly encoded into the Campaigner-in-Chief‘s talking points.

Any politician who without irony calls tax loopholes and other breaks “spending” should be sent home, because they’ve become part of the problem.

But if the former sensible tax relief is now spending, did Obama give “95% of Americans” a tax cut in the Porkulus, or did he just “spend” even more?

H/T

Barack Obama is a hard core statist.  Whether we call him a Marxist, socialist, fascist, or progressive really doesn’t matter.

As proof of his cratocratric mindset, we have the new meme of “tax spending”. From his campaign speech yesterday (emphasis added),

The fourth step in our approach is to reduce spending in the tax code. In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again.

What he’s talking about there is raising taxes on the rich, so hated by his voting base.  Obama and his fellow statists want to increase taxes on the wealthy, because there aren’t enough wealthy people to vote back.

Beyond that, the tax code is also loaded up with spending on things like itemized deductions. And while I agree with the goals of many of these deductions, like homeownership (sic) or charitable giving, we cannot ignore the fact that they provide millionaires an average tax break of $75,000 while doing nothing for the typical middle-class family that doesn’t itemize.

Now, I’m not going to defend the economic wisdom of itemized deductions, because I would have to engage in the Broken Window Fallacy to do so.  I’d rather argue for a flat tax on income over the subsistence level, without deductions, to get government out of the business of influencing economic decisions.

But the reality is that the current tax code draws a delicate balance between the marginal rates and the vast array of deductions, credits, depreciation formulas and set-aside tables. To claim that all of these loopholes and targeted breaks are spending, or somehow favor the rich, is absurd, because people who don’t use them largely don’t use them because they already don’t pay much anyway.

This disgusting practice of stirring up the envy of Americans against one another must be stopped. It must be laid to rest, its proponents so thoroughly defeated that the idea falls into the ash heap of history.

To start, go here.

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  • juumanistra

    While I concur with the commentary on the disgustingness of the class warfare, we ought to be thanking the president for broaching the subject of tax expenditures. As a mature discussion needs to be had about them and whether or not they are sound fiscal policy. The mortgage-interest deduction, employer health-care exclusion, and preferential treatment of pension contributions each run over $100bn/annum in foregone tax revenue, and those are but the most prominent of tax expenditures. I’m rather enthusiastic about taking the axe to them, myself.

    But I’m also the guy who thinks the regressiveness of the tax code is what’s really important, as a regressive tax code produces political outcomes which are more favorable to conservatism. (A tax code in which the widest number of voters bear the biggest burden of governmental finance will produce a permanent constituency in favor of minimizing the size of government and, by extension, their own tax burden.)

    • http://teapartisan.wordpress.com Loren Heal

      You used the phrase ‘tax expenditures”. I stopped reading after that.

      OK, I forced myself to read on.

      The question about soundness is not whether they are good or bad for revenue, the question is whether they are good or bad for the overall economy. I don’t give a tinker’s cuss whether the government is able to extract as much revenue as it wants from the economy.

      But yes, broadening the tax base is important, which is why I support a flat tax (or total repeal of the income tax, replacing it with a national sales tax).

      • juumanistra

        The term has been floating around in the technical literature since the Sixties, when the concept was introduced as a way of trying to get a handle on indirect forms of subsidization: We ought to be grateful for it, as it levelizes the difference between direct spending and foregone tax revenue to allow for apples-to-apples comparisons.

        Ultimately, revenue must be brought into line with spending. I, and you, and most of RedState I suspect, would prefer that to occur by simply reducing spending, but I’m also not so hubristic to think that this is an argument we are guaranteed to win. If we’re going to be stuck with having to pony-up revenue-raising measures — as politics will invariably demand — it’s best to have ready sources we can cite that will do the most good for the least amount of harm. Coincidentally, most tax expenditures fall into that category, for perennial whipping boys such as the Production Tax Credit and ethanol fuel credits fall within their bounds, as do horrendously distorting beasts such as the mortgage-interest deduction and employer health-care exclusion.

        Ultimately, the ability of government to efficiently extract the revenue required to fund itself is vital to good governance. Which is, coincidentally, rather important to the well-being of the overall economy. Tackling the nastiest tax expenditures — the mortgage-interest deduction and the employer health-care exclusion — have the complementary benefits of increasing revenue and removing major sources of distortions in the housing and health-care markets.

        • http://teapartisan.wordpress.com Loren Heal

          I just disagree with almost all of it.

          I have a tea party rally to help organize today, or I would explain.

  • mriggio

    It’s another attempt to muddy logic and trample on clarity of thought. Money belongs to the people who earn it; government takes money from it’s owner via taxes and fees. Providing avenues to avoid taxation cannot be thought of as ‘tax expenditures’ when all those avenues do is allow owners to keep their property.

    Dropping bombs and firing rockets is war. Taxing me is taking some of my property.

    • juumanistra

      It?s another attempt to muddy logic and trample on clarity of thought. Money belongs to the people who earn it; government takes money from it?s owner via taxes and fees. Providing avenues to avoid taxation cannot be thought of as ?tax expenditures? when all those avenues do is allow owners to keep their property.

      The notion of tax expenditures are an attempt to clarify the issue, rather than muddy it. Let’s walk through an example, shall we? Government A wants to promote home ownership, so it allows for a credit for interest paid on the mortgage of a primary residence against one’s taxable income. Government B wants to promote home ownership too, but instead just has its Department of Housing cut a check to each homeowner for the amount of interest they paid on the mortgage of their primary residence for the calender year. In terms of cost, is there any difference between what Government A and Government B are doing? No: They’re both giving homeowners the same rate of subsidization, equal to the amount of interest they paid on their mortgage during the calender year. Government B’s program is probably a bit more expensive, due to the necessity of bureaucracy to cut the checks, but the point on the rate of subsidization is what’s important.

      That is the gift of tax expenditure analysis: It allows for the direct comparison of programs that would otherwise be incomparable due to their methods of operation. And is the any question that Government A is engaged in behavior we would characterize as spending? If not, then why should Government B be excoriated for its outlays, when it and Government A are achieving the exact same result? I’m not trying to be facetious, but it’s very hard to see how one can be intolerable if the other is tolerable.

      Dropping bombs and firing rockets is war. Taxing me is taking some of my property.

      Taxation is not theft, though I suspect bringing up this rather basic point is going to provoke a diatribe or two.

      • aesthete

        From the World English Dictionary: “criminal law the dishonest taking of property belonging to another person with the intention of depriving the owner permanently of its possession” (Italics in original text.)

        It is a form of theft that has been deemed societally to be acceptable, but theft nonetheless. I do agree that the discussion is relatively pointless when none of us are anarchists, but taxation = theft is nonetheless a true statement. (Let me also take this opportunity to tiredly note for the nth time that libertine =/= libertarian…)

        On the subject of tax expenditure analysis: I agree that it is useful, and that we should be eliminating tax breaks which serve the purpose of directing behavior through central planning — essentially just another form of government coercion. As far as I can tell, revisiting the subject of tax expenditures seems to be one of the few points of agreement that Paul Ryan and the President have — which bodes well.

        • juumanistra

          From the World English Dictionary: ?criminal law the dishonest taking of property belonging to another person with the intention of depriving the owner permanently of its possession? (Italics in original text.)

          It is a form of theft that has been deemed societally to be acceptable, but theft nonetheless. I do agree that the discussion is relatively pointless when none of us are anarchists, but taxation = theft is nonetheless a true statement.

          Now you’ve got me breaking out my copy of Black’s Law Dictionary. Damn thing was getting dusty. Not sure whether I should thank or curse you for that.

          “Theft, n. 1. The felonious taking and removing of another’s personal property with the intent of depriving the true owner of it.” (p. 1517, 8th Ed.)

          It’s rather hard for taxation to be felonious when the federal government is breaking no laws in its levying of the tax. Taxation is certainly coercive. And it does transfer your property to the government. But let’s not dumb-down what taxation is by stripping of its lawfulness and legitimacy as enshrined in both our social contract and the Constitution by conflating it with theft. By the same line of logic, Selective Service under the 13th Amendment, because it engages draftees in indentured servitude to the government.

          Ultimately pointless, to be sure, but it’s still fun to mince words.

          (Let me also take this opportunity to tiredly note for the nth time that libertine =/= libertarian?)

          Having spent entirely too much time around anarcho-capitalists, I always get prickly when folks start saying the government’s stealing their property in the form of taxation. Mostly because the next thing I know I’m being berated as a tool of the oligarchy and the only proper course is to smash the state in all of its incarnations. So, in my own defense, the negative connotations of “libertine” seemed rather apt in light of my own experiences. (And I’ve always thought it sounded better, because the tautological nature of the statement “libertarians believe in libertarian ideals” is rather silly.)

          • juumanistra

            Somewhere along the way, the point that Select Service would be unconstitutional under the 13th Amendment got lost.

            I blame it on shrapnel from the sentence’s exploding syntax.

          • aesthete

            However much it was, it was entirely too much. I keed, I keed…

            Theft in the common vernacular (and in a layman’s dictionary) is nonetheless the forcible taking of property without permission or intent to return it. The definition you provided is a great legal one, but not a particularly good one otherwise. Consider a government removing theft from the list of felonious crimes — would a robber taking something from my house not be theft anymore? According to the definition you provided, it legally would not be — but according to common vernacular it would be. Taxation is a form of formalized theft with some legal safeguards, advance notice, majoritarian consent, etc., but theft nonetheless. The draft can certainly be considered a form of indentured servitude, as well (one among several reasons that I vastly prefer our all-volunteer military).

            Again, the discussion is a somewhat annoying one (particularly given the tendency of an-caps to leap from that to a smash the state tirade), but also useful in framing the moral issue of taxation and property rights — if taxation is a value-neutral proposition (which lies implicit in arguments against the taxation=theft types; not necessarily you), then any tax rate ranging from 0-100% is perfectly appropriate and the only concern should be that of efficacy.

          • juumanistra

            Then you’ll wish you’d have just locked yourself in a closet with an Objectivist. At least the Objectivist you can tune out eventually as you train yourself to just shut down your ears whenever you hear about the perfectibility of man. One of the reasons, I suspect, I’m rather stalwart in not giving a vernacular inch, because once conceded, it only seems to encourage them.

            I’m rather forthright in the belief that taxation is value-neutral: If the American people decided that a 100% marginal income tax rate was required to fund a government that did all it wanted, then I’d begrudgingly accept such, because it would be a legitimate expression of popular sovereignty. What matters when taxation is merely a tool is the scope and breadth of government: Obviously, I’d very much oppose any government that required a marginal tax rate of 100% on the grounds that, if it requires such revenues, it’s doing too much. It also does not mean that my own behavior would remain static in light of such a tax burden. But I also wouldn’t conduct a jihad against the very principle of taxation.

            What I very much fear is that we are wrong about the electorate’s desires vis-a-vis the size and breadth of government. That, at the end of the day, the electorate will take the pain of a resolution to fiscal armageddon that is heavy on revenue-raising rather than a resolution heavy on spending-reduction. I think that’s why I’m interested in tax expenditures: It’s the Internal Revenue Code’s equivalent of the standard plea from immigration hawks to enforce the law’s on the books before passing new ones. The same theory roughly applies to collecting what is due but for social engineering carve-outs.

            (Which, of course, begs the question of what is a legitimate deduction and what is a “social engineering carve-out”. Such is probably worthy of a diary post and all of the diaries about Obama’s commentary on “tax code spending” has me mulling such such.)

          • aesthete

            is one we could do without. I would rather go for a stable system that neither rewards or punishes than play too-cute-by-half games with incentives that we really don’t understand.

            I have to say that, at the end of the day, I find taxation to be immoral: I have a greater claim to my own labor and property that derives from said labor than government or an arbitrary body of citizens. It may be the case that a greater evil is prevented with taxation (that’s where consequentialism comes into play, and where I part ways with the an-caps). That does not mean that I must accept the premise that the results of a decision with n% support on the part of an arbitrarily defined citizenry has a legitimate claim on what I worked to obtain: my rights do not magically dissolve because my fellow inmates say they do.

            An-caps can be fun, smart, and are very consistent, but consistency as an end to itself can sometimes be just as problematic as having absolutely no first principles whatsoever. Arguing this point, or consequentialist arguments, to an-caps is fruitless.