Category Archives: Taxes

Competing Interests

Last week the head of a large US corporation met with his peers from other leading firms in the same industry. Although the stated goals of the meeting were a direct violation of federal anti-trust law, they nevertheless held the meeting with fanfare and total impunity. These powerful CEO’s set the ground rules for a price-fixing scheme. They believed it was in the best interests of their industry to establish a price floor for their services. Competition, they feared, would result in a “race to the bottom,” possibly bankrupting many of them. 

            It’s hard to fathom how such an event could have taken place with zero outrage from the political and media class. Indeed, this meeting was celebrated widely. So who were these shameless captains of industry and how did they avoid prosecution? It’s easy to get away with breaking the rules when you’re the one making and enforcing them. The meeting in question was the annual G20 summit. One of the primary outcomes of this meeting was a conspiracy to set a global 15% minimum tax rate on “big business” (whatever that means). The participating governments constitute a literal cartel: “an association … with the purpose of maintaining prices at a high level and restricting competition”. 

            It is a peculiar irony that governments pay lip service to the ideas of “free and fair competition” and “monopolies bad” but then exempt themselves from this very ethos. They have a literal monopoly on violence (law enforcement) and theft (tax collection) within their borders. Competing mail delivery, police, courts, and schools are either prohibited outright or de facto through the crowding out effect of direct taxation for these “services.” The one recourse people have to escape these monopolies is jurisdictional competition. Move to where the policies and taxes are better. States and counties often vie with one another to attract businesses and citizens through more favorable tax treatment. But it seems that option must now be circumscribed, at least at the national level. These governments (mainly the US) are afraid that their onerous policies and taxes will drive businesses into the open arms of the competition – that is, other states/governments. But a price fixing cartel will stop that right in its tracks. This is a desperation ploy, pure and simple. Attempts to tax unrealized gains or this “taxexit” short-circuit only signal the ruling elite are running out of revenue options to offset their decades of profligate spending.

            If the left were intellectually honest they should oppose these supranational agreements. Why? Because it directly nullifies that which they profess hold most dear: democracy. Citizens voted in their representatives. Those reps are tasked with deciding what they think is best for THEIR country (not others). But now those representatives’ voices will be ignored in favor of the wishes of the ruling class oligopoly. Are these democracy worshipers truly indifferent to the idea of the US undermining democracy in foreign lands with their heavy-handed tactics? If China had leverage to influence US domestic policy they would not be so apathetic?

            The US’s globally dominant market position should be used to lead the way toward economic prosperity. It reflects poorly on the US regime that they would use this influence instead as a bludgeon to threaten and coerce others into submission. Were the US to eliminate all corporate taxes it would spark a renaissance of investment and growth as companies expanded and hired workers. We had just a tiny taste of this with the Trump corporate tax cuts. Imagine the impact if those taxes were eliminated entirely! The massive increase in productivity would improve the standard of living for everyone worldwide as other countries followed suit. Every dollar taxed is a dollar that can’t be used to hire a worker, build a new facility, or invest in new equipment. The more you tax the less you can have of all three. Taxes are truly a zero sum game.

The Capitol Gains

Most people may have no idea what capital gains are, but they’re darn sure they need to be taxed more. Biden’s rhetoric on that topic is straight from the populist playbook: “Why, it is so unfair that the rich pay lower rates on capital gains when you, dear sir, must pay a much higher percentage on your paycheck!” 

            First, he tells us that “the rich” are not paying their “fair share,” whatever that is supposed to mean. But in fact, the top 1% of earners pay nearly 40% of all income taxes. Their average tax rate is two to three times higher than all other tax-paying groups. They pay more in taxes than do the bottom 90% of all taxpayers combined. Even though their share of total income is 21%, they pay almost double that as a share in taxes (40%). Exactly how much would be enough to qualify as a “fair share”?            

            Capital gains tax rates of 15% and 20% (we’ll ignore the Obamacare NIT 3.8% surtax for now) are said to amount to some kind of “loophole” or “giveaway” to the wealthy. But crucial context is missing here, namely the historical reasoning behind these rates, which are based on two factors: risk, and double taxation.

            Let’s tackle risk first. Wage income is risk-free. As long as an employee does his job he will always receive his paycheck. Employers do not withhold wages or discount them based on the performance of the business that week. They do not lower them if the product that the employee helped to produce fails to sell as expected. Capital gains, however, are derived entirely from investments that are 100% at risk. What would be the incentive to risk one’s savings in useful investments only to have the government (as proposed) take up to 50% (including state taxes)?

            Note that the government itself risks nothing, yet reaps a reward (in the form of capital gains taxes) from every winner while leaving every loser hanging out to dry (if all of your investments lose money the government doesn’t give you a tax refund). From the government’s perspective capital gains taxation is literally a game of “heads I win, tails you lose.”

            The second fact that the “loophole” claim ignores is that capital gains are already diminished due to prior taxation on the source of the invested funds. Wage income is taxed once (until subject to a sales tax, but this only lends support to the idea of abolishing one or the other). However, capital gains come already diminished by previous taxation. Suppose a worker earns $100 in wages. After taxes (federal, state, FICA, etc.) she now has $60. She invests that $60 in some speculative venture (stocks, real estate, etc.). After a few years that $60 investment grows to $120, so she sells it in order to enjoy those gains. But had the original $100 not been taxed she would have been able to invest the full $100 and thereby seen it grow all the way to $200. So the original taxation has already diminished her returns on that investment by $80. 

            To offset this tax burden somewhat (and thereby to encourage investment) the capital gains rate has historically been set lower than taxes on wage rates. In our example, in which a $60 investment turns into $120, a 20% capital gains tax on the $60 gain means $12 in taxes, for an after tax gain of $48. But the Democrats are proposing to DOUBLE the capital gains rate, from 20% to 40%. This would reduce that current system’s $48 gain to a mere $36. 

            Here’s what that means. The entire $60 she invested was at risk of falling to $0. Some investments don’t pan out. Sometimes you lose everything. If people are at risk of losing $60 and stand to gain a mere $36, people will be less likely to engage in such investment in the first place, which decreases everyone’s standard of living. The tax both reduces the investor’s effective return and, to the extent it does not dry up the investment market entirely, tends to shift future investments into far riskier (higher return) ventures to compensate investors for the higher capital gains taxes. A market dominated by primarily riskier ventures is a much more volatile and wasteful one, since higher risk generally means more failures. Junk bonds will become the new standard investment

            If the Democrats were politically savvy and not devoted to ideology above all else they would propose eliminating all taxes on capital gains and setting the corporate tax rate to 0%. We would see an explosion in domestic investment and job creation as companies from all over the globe came to the US to set up shop and expand. This happened to an extent with Trump’s corporate tax cuts, though not as much as we might have hoped. Why? Because no one trusts the US government on taxes anymore. No matter how “permanent” the rates are claimed to be, we all know that just like Lucy with the football, whatever tax regime we have today will likely be different tomorrow. And the Democrats are just proving them right by fiddling with taxes not even three years later.

             Sleepy Uncle Joe is just wrong when he says “fairness” demands that capital gains be taxed the same as wage income. He is either being deliberately deceitful or wholly ignorant. Neither is a good option.

Slippery Slope

It seems the Democrats are hell-bent on losing to Trump in 2020. Americans do not like taxes. They tolerate them because they’ve been conditioned to accept the fiction that society can’t function without top down central planning. But when given a choice of more or fewer, they’ll opt for fewer. Consider the candidacies of Michael Dukakis and George H. W. Bush. The former promised new taxes while the latter broke his promise to avoid them; they both were beaten badly. Perhaps an oversimplification, but the point is, don’t lead with “more dental work for all”. The near success of Bernie Sander’s prior candidacy has nearly every Democrat tripping over themselves to ironically capitalize on their perception of his voter appeal: envy. The message from the Democrats now is one of simple, base envy. Those people have stuff, we want it, let’s take it. The trite slogan of “making America work for everyone” can be parsed into “making” = “armed thugs will force you”, “America work” = “productive Americans to hand over your property”, “for everyone” = “to the unwilling, unskilled, and envious.” 

The irony is they may succeed as they take a page from Trump’s political playbook. Trump used fear and vilification of “the other,” the illegal immigrant, to bolster support for his cause. The Democrats too vilify “the other,” except theirs is “the wealthy” or “the capitalists.” They make indulgent promises that rest on a bedrock of theft. Just raise their taxes to the roof and empty the pockets of the Kulaks, after all it’s our fair share right? 

Alexandria Ocasio-Cortez’s plan of a 70% tax rates is built upon a foundation of either downright stupidity or deliberate misrepresentations. Neither are good options. Tax rates were at that level and higher in the past but so were allowable deductions! For example, if gross income were $10 then net AGI was only $3 when rates were 70%, but today the rules yield an AGI of $6 but at 35%. Obviously the tax obtained is identical. No matter the tax rate, the government only manages to bring in about 17% of GDP give or take since 1930. I’m sure the current plan is to raise rates and not deductions … but to equate the current goal as being equivalent to past policy is disingenuous – high deductions in the past means nobody paid those high rates. 

Elizabeth Warren has an even more ghastly proposal – a direct wealth tax on assets. Settings aside the constitutional issues with such a tax any student of history should see where this is going. When the income tax was first implemented it was but a mere 1% on income over $50k in today’s dollars, and 6% on income over $8 million. We know how that went. Warren’s proposal has equally high thresholds of 2% on assets over $50 million and 3% over $1 billion. Only a fool would believe those rates will not rise and the thresholds fall in short order. But the big reveal for those thinking this would not affect them is the fact that even those not owing the tax will still have a filing burden. Everyone would in perpetuity endure the annual burden of submitting to our overlords a complete accounting of all that one owns in order to prove no tax is owed. Think property tax on steroids.  

Those who may be persuaded that they will be better off if “others” are punished should be wary of the collateral damage from these financial grenades. When it comes to taxes, slippery slopes are the rule.

The Carrier Deal

Donald Trump is an enigma. On the one hand he is not even President yet and he’s already using his legendary (according to him) negotiating skills to make good on his promise of keeping jobs in America. On the other hand this feat was accomplished through a combination of crony-capitalist carrots and sticks whose effectiveness was largely a consequence of Carrier’s parent company (United Technologies) being a cog in the military-industrial fascist apparatus. Dependency fosters control and United Technologies is highly dependent on the federal government for much of its business, therefore this was somewhat of a low-hanging fruit “win” for Trump.

The reaction to this deal has predictably fallen along party lines although there is a bit of cognitive dissonance on both sides as they try to come to terms with balancing fairness with pragmatism. People appreciate that Trump saved those jobs but are troubled by how he did it. Is it fair to bestow tax “giveaways” on one company but not others? Is it fair to reward only those that threaten to leave? Is it fair to invoke a punitive 35% tariff on goods imported from US overseas firms? The answer depends on the framework in which the question is asked. Within the framework of natural rights and individual liberty none of these are legitimate. The actions of any entity that initiates violence (taxation, tariffs) to achieve its ends are illegitimate. But we don’t live in that world. We live in a world literally run by the very warlords we are told would arise absent the state. Every state (i.e. country) is a plantation; some are far worse than others, but a gilded cage is still a cage. So given our condition of servitude to the state is it fair if the master decides to treat one slave more favorably than the others? Should we tell the master “You have no right to lift our brother out of the mud, please, cast him back down here with us!” Thus we have both sides of the political spectrum opposing this but for opposite reasons. The left opposes it because they enjoy being in the mud and believe this is the only way we can all be equal, therefore it is “wrong” for anyone to get out of the mud. The right opposes it for purity reasons. They believe ALL should escape the mud but that it is an either-or proposition; either all escape or none escape. Libertarians will argue for the moral solution but (grudgingly) accept the pragmatic one as a stepping-stone. Better for some to escape than none. Since wholesale emancipation seems to be off the table, then let’s create so many loopholes and deals that all can escape.

So do I wish I could get the kind of tax incentives Carrier got? Sure. It is absolutely unfair that they get them and other businesses like mine do not. However I’ll still applaud their small victory if it means it moves the needle even a bit toward the direction of universal tax relief.

Color of Law

If you, like me, have been periodically receiving recorded messages on your voicemail from a heavily accented hypnotized Haldol user purporting to be from the IRS you will be relived to hear those calls were actually fraudulent. Yes, I know it is hard to believe. Indian authorities recently raided and arrested hundreds involved in this scam. If you’re curious to hear first-hand how the scam plays out for those willing to take the bait, have a listen to podcaster Tom Woods as he has a little bit of fun with them. It basically ends with the victim being instructed to purchase Target Green Dot cards (of all things) to stave off an imminent IRS raid. We may laugh at the notion that anyone could be so gullible as to fall for this scam but sadly at least 1 in 100 people did indeed fall for it. After the raid it was reported that these scammers raked in from one-hundred to one-hundred fifty thousand dollars every day.

Although we can agree their actions were contemptible, there is actually little separating what they were doing and what the IRS itself does everyday. Granted the IRS does not threaten people over the phone. No, the IRS is much more polite; they use the mail instead. I know. I’ve received many such letters over the years. And in every single case it was due to an error on the IRS’s part. In other words, guilty until proven innocent. Fortunately my issues were all resolved but not without unwarranted time and expense. But more to the point, the IRS is no different than these scammers even when the amounts owed are correct. Why are such amounts “owed”? Because someone somewhere scribbled ink on a piece of paper and bellowed the incantation “lllllaaaaawwwwwwww” over said paper in order to sanctify its legitimacy. The ostensible use of the idea of “law” in order to extract money from a victim is no more legitimate than the actions of such con-men. The fact that a “law” must be made to extract payment proves the transaction is not voluntary – were it so then no law would be needed. We don’t pass laws that stipulate you must purchase food everyday or else.

The same phenomenon exists with money. Counterfeiters are excoriated as contemptuous thieves who extract goods from society without producing anything of value. Their nefarious duplication of currency parasitically extracts value from all other currency holders. True enough. But if a “law” says the government, excuse me, Federal Reserve, may do the exact same thing, well, that is perfectly fine. This is the economic equivalent of a state granted license to kill and no one bats an eye.

So the next time we are cheering for the apprehension of a villainous criminal lets take a moment to shift focus from the mote in their eye and toward the beam in the eye of the state who is more likely than not engaging in the same practice but under the color of law. Remember, don’t steal, the government hates competition.

Pot, meet Kettle

Who here would voluntarily pay more income tax? Anyone? Now be careful and think hard here, after all taxes help support so many aspects of society (roads, schools, welfare, defense, science, economic expansion, etc.) that benefit everyone wouldn’t it be selfish to not do all you could do? Sure the government says you can deduct your mortgage interest, property taxes, and other expenses, but should you? Wouldn’t it be more patriotic to forgo those deductions so that you can more fully participate in the community of this great nation?

If this sounds both familiar and ridiculous at the same time there is a reason for that. The whole message of taking part in the common good of taxation is directly from the statist’s propaganda playbook. The ploy is to guilt you into compliance: if you are opposed to taxation you must also be against all those things taxes fund, right? So while we are instinctively “for” the things taxes fund, we each individually endeavor to keep our share of that obligation to a minimum. A tragedy of the commons in which we extract from the tax pot as much as we can (concentrated benefits of special interests) while limiting what we put in that pot. This tragedy of the commons is nowhere more apparent than in the hypocrisy of ideologues like Clinton who claim the “wealthy” aren’t paying their “fair share” all the while she and her ilk are none to happy to take advantage for themselves every wrinkle in the tax code that allows them to limit their tax liability. Pot, meet kettle.

People who complain about the tax code don’t have any actual experience with it beyond filing their 1040. I do (unfortunately) as a business owner and I can guarantee you there is no secret “check this box to get out of paying taxes this year” box on any of the forms. If the current rumors are true that Trump has not paid taxes for the last 20 years it’s not because he’s some sort of clever businessman or has really great tax accountants. There is one simple reason. He lost a whole lot of money! It is after all called an “income tax.” You must have income in order to tax it. If you lose money in one year and make money in the next you are allowed to offset the profit with the prior loss. If that seems unfair to you then I suspect you’d find nothing wrong with gambling following rules of “heads I win, tails you lose.”

That Trump has apparently carried this loss forward 20 years makes his hesitancy to release his returns all the more understandable. He is tremendously embarrassed by the fact that he hasn’t made any money in over 20 years. In other words, imagine if you had invested $100,000 in the stock market in 1995 but it quickly declined in value to $20,000. Now 20 years later it was again $100,000. Have you made any money?

If it somehow seems unfair to you that people not making any money don’t have to pay “invest in the system” then perhaps it is time to abolish the income tax and shift toward a voluntary user-pays system. Those that consume more will pay more and those that consume less will pay less. You know, like every other good on the open market.

Crocodile Tears

We often hear that that manufacturing is dying in the US because of unfair overseas competition. US manufacturers are either going out of business or shifting operations overseas. However global competition plays a role across all industries, not just manufacturing. Something else is at play. US tax policy singles out manufacturing (actually nearly any business dealing in tangible goods) with unfair rules designed to extract more tax relative to a service-oriented business with the same income albeit while claiming the same tax rate. As the owner of a small US manufacturing firm, I have sadly gained firsthand knowledge of the severe disadvantage one must contend with if they have the audacity to try and make or sell goods in the United States.

The signs of this are not immediately apparent since the nominal tax rate for all corporations (non-pass through) is 35%. The trick though is in the sleight of hand where the focus is on the tax rate while it is the definition of profit that is critical. The common definition of profit is any money remaining after subtracting all expenses from revenue. And we all know what an expenses is, right? Anything you spend in furtherance of the goal of obtaining said revenue. Well unfortunately it’s not that simple, at least as far as the IRS is concerned. In business there are both overhead expenses and capital expenses. Capital expenses are not immediately deducted against revenue but rather depreciated over many years. So if you buy a $100k piece of equipment you don’t deduct the $100k, you deduct maybe $10k that year and for the next 9 years. There may be legitimate business reasons to view the numbers that way for accounting purposes however beyond a certain minimal size a business may not use the cash method (which does not employ depreciation) for tax computation but instead must employ the accrual method which invariably yields a higher figure by shifting more future income into the present. This puts such businesses (primarily manufacturing which is a equipment intensive industry) at a severe disadvantage insofar as the part spent but not deducted accrues tax. But it gets worse. Manufacturing maintains inventory and the inventory is treated as a capital expenses as well therefore none of it can be deducted until sold. And even when sold it is not taxed at lower capital gain rates but at higher regular income rates. The IRS knows the game of “heads I win, tails you lose” quite well.

Ironically it is a rapidly growing business that is most susceptible to such tax harm as most if not all the profits are invested back into the company in order to grow the inventory to keep up with increasing sales. So if you make a $1 million but use it to buy $1 million in inventory you owe $350k in taxes even though you don’t have $350k on hand. Oops. So you either have to borrow it, incurring even greater costs, deliberately slow your rate of growth, or just go out of business. But wait, it gets even worse. If you do so well that your sales exceeds $1 million the IRS redefines expense once again (Section 263a) and says a certain percentage of your payroll, rent, utilities, insurance, etc that is indirectly associated with producing the inventory must also now be capitalized into the value of the inventory. This shifts even more money from the expense column to the profit column. So based on pure available cash flow you may have made $350k but based on IRS capitalization requirements they say you made $1million. So the entire $350k you made is sent to the IRS on your phantom $1 million income and you end the year with nothing.

Only manufacturing is subject to these absurd redefinitions of expense and profit. Service industries have no inventory and nearly no equipment so their profit more or less equals their cash flow. Farming gets a million loopholes to avoid these issues. The rules governing profit/income are far more germane to ones tax bill then the tax rate itself. If we want manufacturing to flourish in this country again perhaps we should stop punishing those who try to engage in it while crying crocodile tears about how US manufacturers are fleeing this country.

Rape culture, no. Theft culture, yes.

There are a number of word-couplet slogans that aim to pithily define some societal ill that is widely ignored but which demands immediate rectification (white (or male) privilege, social justice, rape culture). The proof of said societal ill? The mere Jehovah-like utterance of said phrases brings them into existence before a credulous audience who only need hear the words to accept the implied truth. Their refutation, on the other hand, requires pages of discourse and facts and who has time for that? Mindless emotion trumps facts and reasoned discourse every time.

Sound bite slogans engage in semantic slight of hand, mixing words and their meaning into a soup of inscrutability. As the great sage Inigo Montoya would say, “You keep using that word. I do not think it means what you think it means.”  Perhaps the worst offender among these is “rape culture.” This term is particularly sinister as it establishes its own legitimacy in tautological fashion by claiming that proof of rape culture is found in the very denial of its existence.  Witches must exist because anyone denying their existence is only doing so to cover up their allegiance to said witches.

Users of this term apparently are unaware of what “culture” actually means. The dictionary definition is “the customs, arts, social institutions, and achievements of a particular nation, people, or other social group.” Hmmmm… so it seems if we had a “rape culture” that would mean we would find positive depictions of rape in our literature, movies and television. Our political leaders would extol the virtues of rape whenever possible. We would erect monuments to the greatest and most prolific rapists. Our schools would teach boys and girls the virtues of rape. Nope, I don’t see any of that, do you?

Yes, rape is a horrible crime and the perpetrators should be severely punished, but to suggest that 3% of the population who commits 90% of the rapes (on college campuses) suggests an endemic problem in the very fabric of a society is ludicrous. It ironically mimics the very thing proponents of this term decry – victim blaming – by shifting the blame from the perpetrator to society. “Society” should teach men not to rape and thus to the extent rape exists it is tacit proof of the failure of society to teach that. See, the perpetrators are the victims here as well; it’s not their fault, they never got the “don’t rape” memo from society. Honestly, is there anyone alive who thinks rape is “ok”? Even thieves and murders know their crimes are wrong – and yet they do it anyway. Does this then signify we have a “murder culture” or “theft culture”?

Actually, on that last question I would answer in the affirmative. We do have a “theft culture.” How so? Imagine the following: in order to eliminate the scourge of rape from society the government created an incentive system to stop potential rapists. Whenever someone thought about raping they could instead go to the government Department of Gender Relations and receive a payment to not rape. To make this system work all potential rape victims would be required to pay an annual fee into this system. If they did not pay up, then the government would publish a list of their names and anyone could rape them without consequence. Naturally nobody wants to be on that list so everyone pays – just the threat of what might happen for not paying is enough to ensure all continue to pay “voluntarily.”

Does that seem shocking and crazy? Well it should, but unfortunately this exact system exists today in order to prevent a different crime: theft. Government agents who would otherwise violently rob people in order to extract the proper “tribute” payment to the state’s coffers have convinced everyone it is better if we all just pay them “voluntarily.” If we don’t then they can rob us without consequence. So if we all pay our taxes in a “civilized” fashion then there will never be a need to resort to base barbarism. And it’s all “voluntary”, so that makes it legitimate.

The really scary part is that this culture is not unique to America; it is global. People will universally agree that taxes are bad, but quickly pivot to extol their virtues. The parallel to an actual rape culture would be if society would extol the virtues of all the children born as the result of rape and told women they should just accept being raped because yes it is bad, but look at all the good it brings about. One parallel that does exist today between rape victims and tax victims is the odious practice of “victim blaming” – rape victims “deserved” it because of how they dressed and tax dodgers “deserved” jail because they refused to be robbed; both have the right to exist in the world without being victimized on account of the lens through which others view them.

That is the way of the state, instead of standing as a bulwark against rights violations it institutionalizes those very violations and whitewashes them into a sanitized bureaucratic system that like a virus then infects all cultures, transforming them into the “war is peace” and “theft is good” upside down culture of the state.

Tax It Your Way

The recent announcement that Burger King will merge with a Canadian food chain (Tim Hortons) and shift its corporate headquarters from the US to Canada has predictably tripped the frothing at the mouth reflex of tax-hungry statists. Why? Because such a merger and move (known in tax lingo as “inversion”) means that Burger King no longer need pay the 35% US corporate tax rate (one of the highest in the world and despite popular media propaganda that focuses on a sliver of corporations avoiding it, it is in fact paid by 99.5% of US corporations) on income earned outside the US (they will still pay 35% on their US income). They instead will pay the much lower Canadian rate of 15%.

“Unpatriotic” is the word President Obama has used in the past to describe such tax inversions (which are completely legal) and his retinue are now all too eager to join that chorus – uncritically parroting the approved talking points put out by the administration. This sentiment of “economic patriotism” demands that one’s love of country directly correlate with one’s willingness to hand over whatever the state demands.

Obama has also said tax minimization may be legal but it’s “wrong.” Really? This is a rather warped interpretation of right and wrong. Traditionally “wrong” is reserved for those actions that violate one’s natural rights (theft, murder, rape). If Mr. Obama’s use of this term is technically correct then it betrays a scary proposition: individual ownership can not exist because all is owned by the collective, otherwise how else could it be wrong to keep one’s property, unless it was never yours to begin with.

This sentiment is shared by both the left and the right insofar as both are statist at their core. While they may differ in degree, they stand in solidarity on substance: the role of the individual in society is to serve the interests of the state. A vehement disagreement over whether 35% or 25% is a “fair” tax rate is much sound and fury signifying no disagreement. Shall the master allow his slaves one hour or four hours of rest? Clearly those in favor of one hour are godly and moral men while those supporting four are raving lunatics. But truly insane is the man who says slavery itself is immoral. Pay no heed to him, what he proposes would never “work” in the real world. So you see dear citizen, the profits earned by Burger King (or any company or person) are not really theirs. It belongs to us all, to the state, to the Homeland. How dare you attempt, even legally, to reduce by one red cent your contributive fair share to the communal pot?

The usual sort of justifications for unbounded taxation is that because a company receives benefits from the state (courts, policing, military, roads, research, education, etc.) this therefore establishes an obligate contractual relationship necessitating payment (of a unilaterally determined magnitude) for such benefits. If that is indeed true, then mobster-extorted protection money is equally legitimate.

Ignored in this false choice analysis is the possibility that these supposed benefits of the state would exist in the absence of the state. Naturally they would exist except in the minds of those bereft of an entrepreneurial spirit. The only difference is that privately produced “public” goods would be of higher quality and lower cost. If you’re unconvinced of this fact, just insert the word “public” in front of any good and consider which you would prefer in relation to the privately provided alternative (e.g. toilet, school, transit, food, clothing, car, healthcare, etc.) The difference in costs and quality between tax supported goods and market provided goods is the true dead weight tax cost and represents a net loss to society no different than if the government paid a million men to dig holes and fill them in.

It seems the tax-hungry-economic-patriot can’t decide what they want. If you protest the system they claim you’re unpatriotic and hate America and should leave. But when you take their advice and do leave you are then targeted with the vilest of epithets. But that sort of inconsistency should be expected; the ethics of the statist is consistently inconsistent insofar as they owe their allegiance to the mantra “the ends justify the means.”

The Pedagogical-Socialists Fear Competition

It can be particularly challenging to carve out a pseudo-market based approach to K12 education when the framework must rest squarely upon an overtly socialist system. In Georgia we are bearing witness to such an attempt with the passage of the “Georgia Private School Tax Credit” (HB 1133) in 2008. This bill set up a system whereby private individuals and corporations can make limited charitable donations to a “Student Scholarship Organization” (a type of charitable entity authorized through the bill). These organizations in turn grant scholarships to K12 students (typically needs based) so that they can attend a private school of their choice. Private entities donating money to help needy children get a quality education, what could be wrong with that? Well a whole lot according to groups like the Southern Education Foundation. This group and others feel that this program is diverting funds from public schools to private schools. The SEF is currently assisting in a lawsuit aimed at having the entire law declared unconstitutional.

Their assertion is true, untrue, and entirely irrelevant. To explain requires a bit of background. I will attempt to not bore you to tears so I will move quickly and gloss over some details. Essentially a taxpayer with a $1000 tax bill to Georgia can choose to send that $1,000 to an SSO of their choice instead of to the state of Georgia as long as they have permission from the state. Each year the state allows people to do this until an aggregate cap ($58 million for 2014) is reached. The benefit to the taxpayer is that while it does not change their Georgia tax liability it may lower their Federal liability in some situations. Although the state does indeed receive $58 million less than they otherwise would have absent this program, there is nothing in the law that says the education budget must be debited an equal amount. The legislature is the ultimate arbiter of funding. So decreased tax revenue could put pressure on them to decrease funding, in which case their charge is true. Or, to avoid such political backlash, they may not cut funding at all, in which case the charge is untrue. The only thing one can say for certain is that decreased tax revenue means that programs on the margin will receive less funding or that taxes will be raised to make up the shortfall.

Of course to suggest that reduced funding is a bad thing is completely wrongheaded. This is precisely what it SHOULD be doing. In essence this program is a backdoor to incremental privatization of the socialistic state run school system. To the extent that this program incentivizes parents to pull their children from public schools and move them into private schools it then follows that those public schools should require proportionally less funding. If the public school has 100 students and costs $100 to run, then if 50 students leave it follows that that public school does not still need $100 to run. Even if we assumed all $58 million got carved from the 2014 education budget that would be only a 0.5% reduction.

The goal is that the SSO’s act as a private version of a state education budgeting agency. In other words, given that many different SSO’s have sprung into existence all competing with each other for donations, it follows that those that are the most efficient at maximizing the student to dollar ratio (more students educated for fewer dollars) will excel. Why? Do you prefer to give to an efficient or inefficient charity? So the public school proponents should welcome this change. It will mean that if 50 students leave they will take with them only $25 leaving $75 for the remaining 50 public school students. How can they get by with only $25? Because they’ll get $50 worth of value due to competition driven market efficiency.

Of course in a truly market based system it would not be necessary to have all sorts of complicated tax credits and state chartered charities. Until the pedagogical-socialists let go of their superstitious fear of freedom that compels them to believe the only possible way to educate children is through gun-enforced collectivist redistribution, we will be stuck with the timid attempts of the state to emulate market based solutions to problems created by the state.