Thursday, May 29, 2014

The Lie of "Tax Expenditures"



A message from my State Assemblyman, Troy Singleton, landed in my inbox recently.  The point of Mr. Singleton’s missive was that our State should be more judicious in its manner of granting tax exemptions to selected businesses. Who could object to greater discernment and deliberation on the part of our elected officials?

Singleton touts his Economic Opportunity Act of 2013 that creates jobs by allowing “individuals or businesses to reduce their tax liability if they meet certain criteria”.  Therefore by the testimony of his own legislation, Singleton recognizes that reduced taxes translate to more jobs and greater prosperity in general.  Most Jersey politicians recognize this.  That is why we have Urban Enterprise Zones in the state.  Urban Enterprise Zones are neighborhoods where the political class has granted tax relief to resuscitate their moribund economies once the collectivists have plundered, raped, pillaged and left them for dead.

The obvious question is, if everyone accepts that tax relief makes life better, why not relieve us of taxes altogether?  No one has ever argued that more income extracted from honest businesses or individuals makes life better.

Singleton proposes that New Jersey taxpayers underwrite extensive economic analysis to better determine which businesses are most deserving of special tax privileges.  Murray Rothbard, one of the most astute economic thinkers of all time, points out that economists are ill equipped for such a task.  He writes:

“Contrary to the pretensions of many economists, he is of little aid to the businessman. He cannot forecast future consumer demands and future costs as well as the businessman; if he could, then he would be the businessman. The entrepreneur is where he is precisely because of his superior forecasting ability on the market. The pretensions of econome-tricians and other “model-builders” that they can precisely forecast the economy will always founder on the simple but devastating query: “If you can forecast so well, why are you not doing so on the stock market, where accurate forecasting reaps such rich rewards?”

Of course all economic analysis must be subject to interpretation.  This job falls to silver tongued lobbyists.  You can bet that the firms with the best lobbyists will also be the ones most deserving of tax breaks.

But what really gets my (1/4) Irish up is when my Assemblyman starts throwing the term “tax expenditure”.  What is a tax expenditure?  It is simply any money that the government lets you keep after they are finished taking their share.

For instance, let’s say that you spend the day digging ditches for $100 and the government takes half of that.  The $50 that you have left is a tax expenditure that the government has made to allow to get enough food to eat and a place to sleep so that you come back tomorrow and produce more tax revenue for them.  The underlying assumption behind “tax expenditures” is that everything that you have is really government property and that they are doing you a solid by allowing you to keep a bit for yourself.

Here is an example.  A mild mannered kid goes to school each day only to have his lunch stolen by a bully. After a while, the mild mannered kid starts performing poorly in his studies because he is weak and hungry.  The school is considering expelling him for poor performance.  Seeing this, the bully realizes that his meal ticket may be going away.  Therefore he now steals only half of the mild mannered boy’s lunch so that his victim can have enough sustenance to stay in school.  Thus the bully has made a “tax expenditure” of a half of lunch per day in order to maintain the viability of income stream.

And that is the lie of tax expenditures.  What is theirs is theirs.  And what is yours is theirs as well.


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