From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by “soaking the rich,” but that the burden must be carried by the masses. (…) Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will have to foot the bill themselves for the subsidies. (…) An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole doctrine of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.
And now left-progressives are aghast as they witness first-hand the Santa Claus principle liquidating itself on their own pay stubs and find themselves holding the bag, following the payroll tax hike Obama recently signed into law.
The following are posts from DemocraticUnderground as reported by the Washington Times:
“What happened that my Social Security withholding’s in my paycheck just went up?” a poster wrote on the liberal site DemocraticUnderground.com. “My paycheck just went down by an amount that I don’t feel comfortable with. What happened?”“I know to expect between $93 and $94 less in my paycheck on the 15th,” wrote… “RomneyLies.” “My boyfriend has had a lot of expenses and is feeling squeezed right now, and having his paycheck shrink really didn’t help,” wrote “DemocratToTheEnd.”“BlueIndyBlue” added: “Many of my friends didn’t realize it, either. Our payroll department didn’t do a good job of explaining the coming changes.”
Most of the handwringing over the recent “fiscal cliff” legislation has been over massive tax credits for favored interests amidst huge tax increases for everybody else. See especially this Wall Street Journal editorial and this column by Tim Carney. It is important to remember, however, that tax credits and loopholes are good things. As Mises said, capitalism breathes through loopholes, and as Rothbard said, every step toward making the tax code one giant loophole is progress.
Payments made by crony capitalists for any crimes they’ve committed should be paid directly to their victims, and not to the state via increased taxation. Tax credits, even those given to the worst crony capitalist, are not injustices. However, they are signs of hypocrisy, and make the true injustices committed by those cronies all the more appalling.
The true injustices involve supporting state coercion of others and state-granted coercive privileges and subsidies for themselves.
The largest recipients of the “fiscal cliff” tax credits are also the biggest supporters of both Democratic and Republican Federal lawmakers: General Electric, Citigroup, Goldman Sachs, etc. (And this support pours forth both through campaign contributions, as well as cushy jobs and contracts once the lawmakers are on the Wall Street/K Street side of the “revolving door”.
This power elite supports both the left and right wings of the bird-of-prey that is the Federal state, and direct the state’s talons against their non-crony competitors and the productive public in general, through taxation, inflation, and regulation. By squashing competitors, this ensures outsized profits, and by mulcting non-cronies to the hilt, it ensures funding for the cronies’ subsidies (like GE’s billions of dollars in Federal “green” stimulus money) and bailouts (like the ongoing Federal Reserve QE bailouts of the elite banks).
And, it is these injustices, and not tax credits, that are abrogations of consumer sovereignty, and thus, sources of inefficiency in the market. Tax credits, by allowing producers to keep more of the earnings that consumers award them, make producers more eager to satisfy consumer wants. On the other hand, the taxation and regulation of non-cronies to support the true corporate welfare (subsidies, bailouts, and state-supported “profits”) of cronies makes the market less competitive, and less responsive to consumer wants. It makes success more dependent on political pull, and less dependent on the efficient provision of goods and services.
Robert Wenzel makes this important point.
Has there been anything comparable on the Austrian/Austerian side?
Why would any economist who knows anything about Austrian economics and bankster austerity programs link the two? Austrian economists have never supported any plan to suck dry the masses via taxation to payoff banksters holding government debt, which is what austerity programs are all about. As the leading Austrian economist, Murray Rothbard, put it:
I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation.
This is the exact opposite of austerity programs, which are designed to prop up sovereign debt and insure the banksters are paid.
A great, uplifting song for kicking off the first day of the new year. “It’s hard to dance with the devil on your back, so shake him off!” Interpret it as a motivational anthem for the free (market-civil-and-family) society, and the “devil” as the imperial, parasitic state.
Edit: A lyric from the song which can be interpreted as anti-state-appropriation: “Every demon wants his pound of flesh. But I like to keep some things to myself.”
Be sure to read any you missed!
1. Why ObamaCare Will Fail: A Reading List – Mises.org
2. The Skeptic’s Case – David M.W. Evans
3. The Seven Rules of Bureaucracy – Loyd S. Pettegrew
4. In Praise of Homeschools – Aaron Smith
5. The Task Confronting Libertarians – Henry Hazlitt
6. Charting Fun with Krugman – Robert P. Murphy
7. Is the United States in a Liquidity Trap? – Frank Shostak
8. It’s 1980 Again – Doug French
9. The Molyneux Problem – David Gordon
10. Government Medical “Insurance” – Murray N. Rothbard
11. An Austrian Defense of the Euro – Jesus Huerta de Soto
12. Currency Wars – Doug French
13. How Deflationary Forces Will Be Turned into Inflation – Thorsten Polleit
14. Price Gouging Saves Lives in a Hurricane – David M. Brown
15. Currency Debasement and Social Collapse – Ludwig von Mises
16. Why Estonia Is Beating the Eurozone – Frank Shostak
17. Child Safety and State Failure – Ninos P. Malek
18. What Is a Scientific Theory? – Mark R. Crovelli
19. The Myth of Austerity – Philipp Bagus
20. Hyperinflation Is Not Inevitable (Default Is) – Gary North
21. The Bernanke Bust – Michael Pollaro
22. It’s Not Really about the Debt – Frank Shostak
23. Of Krugman and Diocletian – Peter C. Earle
24. New York Fed: Leave the Building! – Robert Wenzel
25. Withholding Consent from the Khan – Peter C. Earle
26. “Fool’s Gold” Standards – John P. Cochran
27. Dancing on the Grave of Keynesianism – Gary North
28. The Fiasco of Fiat Money – Thorsten Polleit
29. The Vampire Economy and the Market – Ben O’Neill
30. The 99 and the 1 – Daniel J. Sanchez
Neil deMause writes in Slate of “Georgia’s Hunger Games“:
“Fewer than 4,000 adults in the southern state receive welfare, even as poverty is soaring. How Georgia declared war on its poorest citizens—leaving them to fight for themselves.”
He compares Georgia unfavorably with other states, specifically California and Maine.
“In states like California and Maine, which have focused on getting their poor citizens into jobs programs, about two-thirds of those eligible still receive welfare. On the opposite end of the spectrum is Georgia, which over the past decade has set itself up as the poster child for the ongoing war on welfare. …the number receiving cash benefits has all but evaporated…”
He blames discrepancy on the red state/blue state divide, pointing to Georgia’s “all-Republican state government.” He bemoans:
“What this has created is a land that welfare forgot, where a collection of private charities struggle to fill the resulting holes. For the Atlanta Community Food Bank, that means sending out more than 3 million pounds of canned goods, bread, and other groceries each month to churches in and around Atlanta to help feed the state’s growing number of poor and near-poor.”
First of all, what is wrong with private charity stepping in to fill the gap? With the present economy as bad as it is, providing succor to the swelling ranks of the needy will inevitably be a “struggle”. What is wrong with that struggle being voluntarily borne by donors and competently administered by private charities instead of involuntarily borne by taxpayers and incompetently administered by bureaucrats?
Furthermore, it is interesting that, according to the Chronicle of Philanthropy’s ranking of the states according to charitable giving, 9 of the top 10 are deMause’s dreaded red states, and 8 of the bottom 10 are blue.
Georgia ranks way up at #8.
Maine, deMause’s “model state”, scrapes the bottom at #49.
And in terms of the median contribution of its residents, Maine is dead last.
But then, who can blame them? Surely they think they’ve fulfilled their role by funding Maine’s copious welfare rolls with their taxes. True, state welfare harms much more than it helps. But the point is, regardless of the results, they’ve already paid their part in their minds.
With this effect in mind, plus Obama’s repeated proposals to limit tax deductions for charitable giving (echoed recently by Cato Institute Fellow Daniel Mitchell), it is more apt to speak of a “war on charity” than a “war on welfare.”
For Hayek, ”Justice is an attribute of individual action. I can be just or unjust toward my fellow man.” But ”social justice” is a “meaningless conception.”
From Rothbard’s, Man, Economy, and State:
“There are other elements that enter into the determination of the time-preference schedules. Suppose, for example, that people were certain that the world would end on a definite date in the near future. What would happen to time preferences and to the rate of interest? Men would then stop providing for future needs and stop investing in all processes of production longer than the shortest. Future goods would become almost valueless compared to present goods, time preferences for present goods would zoom, and the pure interest rate would rise almost to infinity.”
From recent news:
“A Hong Kong man who formerly worked in the information technology sector is preparing for December 21 – which the Mayan calendar had marked as Doomsday – by living it up as if there’s no more tomorrow.
The 40-year-old man sold his flat and possessions last June and has gone on a spending spree since, a report on Hong Kong’s The Standard quoted his psychologist as saying.
“He quit his job, sold his flat and traveled everywhere, eating at high-end restaurants and living in hotel rooms in anticipation of December 21,” psychologist Ng Siu-sun said of the man.
Ng pointed out the man isn’t alone: the psychologist said he is treating up to eight other people in a similar situation.”
Two revisionist must-reads for this “Day of Infamy” (the anniversary of the attack on Pearl Harbor): How U.S. Economic Warfare Provoked Japan’s Attack on Pearl Harbor by Robert Higgs and Pearl Harbor: Roosevelt Knew by Justin Raimondo. Some conservative and libertarian-ish fans of our Facebook page have recoiled in horror at the evidence and arguments presented in these pieces.
Professor Higgs reflects:
“That so many Americans react with shock and anger when they encounter evidence about FDR’s various efforts to bring the USA into World War II tells me that they have personally identified with the state. Hence, they react to anyone’s indictment of the state as if it were a personal attack on them. They will seek any possible way to defend the state and its leaders, regardless of plain evidence of those leaders’ complicity or responsibility. Professional historians for the most part long ago accepted that FDR wanted to get the USA into the war, but they do not blame him for doing so. On the contrary, they praise him for his far-sighted understanding that this country “needed to” enter or “should have” entered the war, given what a wonderful project it was. The great majority of Americans, they believe, were at the time too pig-headed and parochial to recognize what should be done for the good of the country and the world.”
From one of his Newsweek Business Tides columns:
“The favorite demand of most tax “reformers” is that we must “close the loopholes.” But what is a loophole? Those who invoke the catchword never refer to the exemptions and deductions that apply to the low-bracket incomes. They use it only to stigmatize the deductions that those who earn high incomes are permitted to take, implicitly or explicitly, by the law. They do not stop to ask whether a deduction is fair or unfair. Do a few abuse it? Then it should be denied to everybody. Even President Kennedy, in his tax message to Congress on April 20, 1961, said: “The slogan—‘it’s deductible’—should pass from the scene.” He was talking of expense-account abuses; but if his statement were taken without qualification, no expense deduction, no matter how legitimate, would ever be allowed. Even a company that lost money would pay taxes on its gross. It is only because of expense deductions and “loopholes” that most businessmen are able to stay in business at all.
The kind of tax reform we most sorely need is not that proposed by the “loophole” closers. The most important tax reform is to stop confiscation.”
A teacher writes:
I am teaching an AP US History class and we are discussing the tariff controversies of the 1820s. I wanted to discuss the Harrisburg Convention of 1827 and looked for some quick references. Nothing in the Britannica hard copy, nothing on Wikipedia. I then searched the Mises.org website and found a 22-page article on PDF by W. Kesler Jackson from The Libertarian Papers (2010). Many thanks to the Ludwig von Mises Institute for making this type of free market publication available.
An article linked to on Drudge is reporting that the US actually considered nuking the moon to intimidate the Russians at the height of the Cold War.
At the Mises Institute Supporters Summit:
The response of several businessmen to the upcoming implementation of Obamacare has made quite a splash. Both John Schnatter of Papa John’s Pizza and Denny’s franchisee John Metz announced that the law would impel them to cut employee hours and raise customer prices, which is fair enough.
However, they erred when they both claimed that through such price hikes they would be “passing on” the costs of Obamacare to the consumer. Their error was not only strategic (“Passing on costs to consumers? What heartless, selfish capitalists!”), but conceptual. Rothbard demonstrated in Power and Market that the notion of such “forward tax/cost shifting” is fallacious:
“The idea that the increased cost will be passed on to the consumer by the employer is an illustration of perhaps the single most widespread fallacy on taxation: that businessmen can simply shift their higher costs forward onto the consumers in the form of higher prices. All the economic theory expounded in this book shows the error of this doctrine. For the price of a given product is set by the demand schedules of the consumers. There is nothing in higher costs or higher taxes which, per se, increases these schedules; hence, any change in selling prices, whether higher or lower, will decrease the revenues of the business involved. For each business, on the market, tends to be, at all times, at its “maximum profit point” in relation to the consumers. Prices are already at their point of maximum return for the business; therefore, higher taxes or other costs imposed on the firm will reduce their net incomes rather than be smoothly and easily passed on to consumers. We thus arrive at this significant conclusion: no tax (not just an income tax) can ever be shifted forward.
Suppose that a particularly heavy tax—of whatever type—has been laid on a specific industry: say the liquor industry. What will be the effects? As we have noted, the tax will not simply be “passed on” to the consumers. Instead, the price of liquor will remain the same; the net income of the firms will decline. This will mean that returns will be lower to capital and enterprise in liquor than in other industries of the economy; marginal liquor firms will suffer losses and go out of business; and, in general, productive resources of all types will flow out of liquor and into other industries. The long-run effect, therefore, is to decrease the supply of liquor produced, and therefore, by the law of supply and demand, to raise the price of liquor on the market. However, as we have said above, this process—this diffusion of suffering over the economy—is hardly “shifting.” For the tax is not simply “passed on”; it only permeates to the consumers through hurting the industry taxed. The final result will be a distortion of the factors of production; fewer goods are now being produced than the consumers would prefer in the liquor industry; and too many goods, relatively to liquor, are being produced in the other industry.”
The hunt for deductions, exemptions, and loopholes to eliminate, undertaken by The Economist (as seen in my last post) and other “free-market” advocates, is part of the never-ending quest to “broaden the tax base”, which has been a fixture of Republican economic policy for decades. Mitt Romney referred to it repeatedly in his presidential campaign, and it was a major plank of “Reaganomics.”
“Broadening the tax base” is also part of the Republican holy grail of “revenue neutrality”, which Grover Norquist underlined once again on November 16:
Romney’s plan was always revenue-neutral — I’m in favor of getting rid of deductions and credits and reducing rates, as long as it’s revenue-neutral. That’s always been the Republican position.
Rothbard pointed out the folly of “revenue neutral” deal-making back in 1993 in the Rothbard-Rockwell Report:
The last time that “free market economists” played such a repugnant role was in the 1986 “tax reform,” engineered by Jacobin egalitarian economists in the name of “fairness,” “equality,” and free markets. (Tip: genuine free markets have nothing to do with “equality,” and nothing whatever to do with modern leftist notions of “fairness.”) The “social compact” devised by the 1986 Republican Jacobins was to cut upper income tax rates in exchange for “closing the loopholes,” “broadening the tax base,” and thereby keeping everything “revenue neutral.” (Query: what’s so great about keeping tax revenues up, the eternal aim of supply siders? Why not drastically lower tax rates and tax revenues? Isn’t that the real free-market position?)
Well, they closed the loopholes all right, thereby leveling a blow to the real estate market from which it has still not recovered. Thanks, Jacobins. And, as some of us predicted without being heeded in 1986, it took only a few years for the upper income tax rates to be raised again.
Twenty-six years later, the ineducable supply siders are looking to make the same mistake all over again, and it will likely bear similar fruits. Even if “tax broadening” garners concessions concerning “tax hiking”, those concessions will likely ultimately be reversed, and we will end up with a tax structure that is both broader and higher.
Congress is desperately searching for the brake as the Federal government rapidly approaches the year-end “fiscal cliff.” The chief element of President Obama’s plan to keep from going over the edge is to raise taxes on the “rich.” Predictably, he claimed on November 14 that his re-election gave him a clear mandate on the issue:
But when it comes to the top 2 percent, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars. (…)
I mean, this shouldn’t be a surprise to anybody. This was — if there was one thing that everybody understood was a big difference between myself and Mr. Romney, it was, when it comes to how we reduce our deficit, I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more.
“A little bit more” is a little bit rich, given that if the “Bush tax cuts” expire, the two top marginal rates will go from 33% and 35% to 36% and 39.6%. As Ludwig von Mises explained in Human Action, such confiscatory taxation of higher incomes harm not only those taxed, but working men and women as well:
The greater part of that portion of the higher incomes which is taxed away would have been used for the accumulation of additional capital. If the treasury employs the proceeds for current expenditure, the result is a drop in the amount of capital accumulation. (…) Thus the accumulation of new capital is slowed down. The realization of technological improvement is impaired; the quota of capital invested per worker employed is reduced; a check is placed upon the rise in the marginal productivity of labor and upon the concomitant rise in real wage rates. It is obvious that the popular belief that this mode of confiscatory taxation harms only the immediate victims, the rich, is false.
The Economist Magazine assured us in their November 17 edition that such a tax hike “would hardly capsize the economy”, however it advises a more “efficient way to raise revenue.”
It would be better to revamp the tax code, starting out by leaving marginal rates alone and instead raising revenue by curbing the deductions and exemptions that pockmark the system and cost the Treasury as much as $1 trillion a year in forgone revenue. These “tax expenditures” are camouflaged government subsidies and create damaging distortions: the mortgage-interest deduction, for instance, encourages supersized houses and debts to match; the charitable deduction forces taxpayers to subsidise everyone else’s pet cause…
Murray Rothbard dealt with the Orwellian twisting of language involved in referring to deductions and exemptions as “subsidies” in Power and Market:
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 not equivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellowmen; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellowmen, 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.
In the literature on taxation there is much angry discussion about “loopholes,” the inference being that any income or area exempt from taxation must be brought quickly under its sway. Any failure to “plug loopholes” is treated as immoral. But, as
Mises incisively asked:
“What is a loophole? If the law does not punish a definite action or does not tax a definite thing, this is not a loophole. It is simply the law. . . . The income tax exemptions in our income tax are not loopholes. . . . Thanks to these loopholes this country is still a free country.”
Rothbard explained in Power and Market why a “wealth tax” would be particularly pernicious (see his conclusion in bold below):
Although a tax on individual wealth has not been tried in practice, it offers an interesting topic for analysis. Such a tax would be imposed on individuals instead of on their property and would levy a certain percentage of their total net wealth, excluding liabilities. In its directness, it would be similar to the income tax and to Fisher’s proposed consumption tax. A tax of this kind would constitute a pure tax on capital, and would include in its grasp cash balances, which escape property taxation. It would avoid many difficulties of a property tax, such as double taxation of real and tangible property and the inclusion of debts as property. However, it would still face the impossibility of accurately assessing property values.
A tax on individual wealth could not be capitalized, since the tax would not be attached to a property, where it could be discounted by the market. Like an individual income tax, it could not beshifted, although it would have important effects. Since the tax would be paid out of regular income, it would have the effect of an income tax in reducing private funds and penalizing savings-investment; but it would also have the further effect of taxing accumulated capital.
How much accumulated capital would be taken by the tax depends on the concrete data and the valuations of the specific individuals. Let us postulate, for example, two individuals: Smith and Robinson. Each has an accumulated wealth of $100,000. Smith, however, also earns $50,000 a year, and Robinson (because of retirement or other reasons) earns only $1,000 a year. Suppose the government levies a 10-percent annual tax on an individual’s wealth. Smith might be able to pay the $10,000 a year out of his regular income, without reducing his accumulated wealth, although it seems clear that, since his tax liability is reduced thereby, he will want to reduce his wealth as much as possible. Robinson, on the other hand, must pay the tax by selling his assets, thereby reducing his accumulated wealth.
It is clear that the wealth tax levies a heavy penalty on accumulated wealth and that therefore the effect of the tax will be to slash accumulated capital. No quicker route could be found to promote capital consumption and general impoverishment than to penalize the accumulation of capital. Only our heritage of accumulated capital differentiates our civilization and living standards from those of primitive man, and a tax on wealth would speedily work to eliminate this difference. The fact that a wealth tax could not be capitalized means that the market could not, as in the case of the property tax, reduce and cushion its effect after the impact of the initial blow.
William Anderson Walter Block Per Bylund John Cochran Jeff Deist Thomas DiLorenzo Gary Galles David Gordon Jeffrey Herbener Robert Higgs Randall Holcombe David Howden Jörg Guido Hülsmann Peter Klein Hunter Lewis Matt McCaffrey Ryan McMaken Thorsten Polleit Joseph Salerno Timothy Terrell Mark Thornton Hunt Tooley Christopher Westley