A Response to Conservative Defenders of Tax Credits

by Myron Ebell on May 7, 2011

in Blog, Features

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In response to my criticism of conservative Members of Congress for supporting H. R. 1380, which I have nicknamed the T. Boone Pickens Earmark Bill, some conservatives (in which broad category I include libertarians and advocates of free markets) have defended tax credits, even those that benefit only narrow interests.  They do, after all, reduce some people’s taxes, and reducing taxes is a good thing.  Some even go further and define ending tax credits as raising taxes.  Some anti-tax groups thus demand that elimination of any tax credits be matched with tax cuts somewhere else.

The conservatives who make these arguments do so because they have unknowingly accepted the world view of the left.  They have forgotten that the Constitution was designed to maintain a nation of citizens rather than to create a government with subjects.  They ignore the essential role that the equal protection of the laws fulfils in maintaining the rights of citizens against the encroachments of government.

Tax credits (also known as “tax expenditures”) for buying or producing certain goods and services rather than other goods and services are a species of wealth re-distribution.  Tax credits are a particularly obnoxious type of wealth re-distribution because the re-distribution generally flows from the politically less powerful to the politically more powerful.

Many tax credits are special interest payoffs masquerading as tax cuts.  Low taxes encourage independence and self sufficiency, while tax credits encourage dependency on government.  Corporate welfare dependency does more to undermine limits on government than the welfare dependency of the poor because it gives money to special interests that is then used to lobby for more payoffs.

Tax credits are one of the Nanny State’s most insidious ways of substituting government’s judgment about what is best for people for people’s own judgment about what is best for themselves.  This substitution is almost always sold as promoting some greater goal, the achievement of which will be for the common good.

Thus tax credits for natural gas vehicles (and also for hybrid vehicles) are purportedly for the purpose of reducing imports of foreign oil or of reducing greenhouse gas emissions (goals which it is alleged advance the common good of Americans), when in fact their purpose is transferring wealth from some industries and individuals to the producers of natural gas and manufacturers of natural gas vehicles and to individuals and businesses that drive natural gas vehicles.

It is often implied that no one is harmed by tax credits that benefit some particular special interest.  Inasmuch as government can’t print money indefinitely and must raise revenue to pay for government spending, this claim is absurd.  If someone gets a $7,500 tax credit for purchasing a natural gas or a hybrid vehicle, then the rest of us are going to have to pay higher taxes to fund the government.  Moreover, many of the tax credits that benefit narrow special interests are refundable, which means that they are paid whether the beneficiary owes any taxes or not.  Thus the government must take money from those not receiving the tax credit in order to pay those who are receiving it.

Conservatives who profess to believe in maintaining limits on government should be wary of anything that blurs the distinction between activities that are the proper role of government and those that should remain a matter for individuals to pursue without government interference.  They should be especially wary of the softer, more seemingly benign forms of government encroachment beyond its proper sphere.  Tax credits to encourage some kinds of behavior often seem like a quite harmless way to accomplish some worthwhile goal.  But once the principle is conceded, there is simply no end to the social engineering that will be attempted by the left, whose goal is to replace citizens with government subjects.

(I recognize that these observations and arguments will not be accepted by the sorts of libertarians who define all taxes as theft.  For them, anything that allows people to keep more of their own money results in the morally preferable outcome.  This position no doubt has its charms for some, but it is utterly irrelevant to our constitutional regime of ordered liberty.  Taxes are burdensome, and high taxes threaten our freedom as well as our prosperity, but taxes are not illegitimate.  No conservative who supports the Constitution can argue that all taxation is theft.)

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