Daniel J. Sanchez, writing for The Circle Bastiat, has produced an excellent article about tax credits and tax loopholes.
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.
He’s right. Instead of demanding that government pilfer crony businesses, insist on additional tax credits and loopholes that will allow you to retain more of your justly-acquired property. This is the position that advocates less theft instead of more theft.
Sanchez goes on to explain that “the true injustices involve supporting state coercion of others and state-granted coercive privileges and subsidies for themselves.” This mulcting of taxpayers and non-cronies for the benefit of special interest groups is directly sanctioned by government.
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.
(Photo credit 401(K) 2013)