Caroline Baum Wrong on Tax Breaks- Sort Of and the Need to Privatize Roads

Let me first say that when it comes to financial commentators, Caroline Baum is easily near the top of my list.  Not only does she succinctly outline the workings of monetary policy and the disastrous consequences it can have on the economy but she does it with a prose so pointed and entertaining that it pains me to be critical of her work.  However, something really stuck out in her Bloomberg Businessweek column today.  On where to place blame regarding U.S. Congress' supercommittee failure to reach a deal on deficit reduction she goes to the whipping boy of tax reformers known as tax breaks:

Blame Grover Norquist. The president of Americans for Tax Reform, a taxpayer advocacy group, asks elected officials to sign a pledge that commits them to never raise taxes on anyone. The pledge has 279 signatories, almost all Republicans, in the 112th Congress. 

Norquist views the elimination of tax breaks as a tax increase. That’s nonsense. A tax break for one industry or interest group, without a revenue offset, means a bigger deficit. That’s why such breaks are called “tax expenditures.” They’re government spending by another name.

Besides, when Congress writes an exemption or deduction into the tax code, unless it cuts spending (see definition of real cut, above), eventually someone else’s taxes go up. Where was Norquist’s pledge when an estimated $1.1 trillion of annual tax expenditures was created?

Now Ms. Baum is correct in that a tax break not offset by a cut in spending results in an increase in the deficit.  And of course government spending is always a tax as the debt must be paid off eventually (at least in theory).  But she is ultimately wrong to blame tax breaks for exacerbating the federal debt when it is really spending that is the key issue.  Tax breaks and loopholes are only the private sector's way of retrieving an ability lost: to operate without the barrel of government pointed and standing by to confiscate income upon profit.  Mises spoke on tax loopholes over six decades ago:

Many people object [to tax loopholes]. They stress the fact that most of the laws which aim at planning or at expropriation by means of progressive taxation have left some loopholes which offer to private enterprise a margin within which it can go on. That such loopholes still exist and that thanks to them this country is still a free country is certainly true. But this loopholes capitalism is not a lasting system. It is a respite. Powerful forces are at work to close these loopholes. From day to day the field in which private enterprise is free to operate is narrowed down.

Rothbard provides perhaps the best defense of loopholes in Man, Economy, and State:

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 notequivalent to a subsidy. There is a key difference. In the latter case a man is receiving a special grant of privilege wrested from his fellow men; in the former he is escaping a burden imposed on other men. Whereas the one is done at the expense of his fellow men, 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.

(Thanks to RW for pointing these out).

Caroline Baum has provided some of the most eloquent yet forceful defenses of free market capitalism throughout her years as a commentator.  That's why it's a shame to see her attacking tax breaks which are one of the last defenses business has in not having its hard earned income confiscated.  Not only should tax breaks be defended, they should be increased and extended to everyone as Rothbard notes.  The problem isn't the slave looking to lighten the pain of the whiplash but the whip bearer itself known as the state.

I was asked to write a post on a recent article advocating for toll roads up in Canada.  I just want to draft some ideas really quick on why "public" roads are so poorly maintained:

The key thing to remember about "public" goods such as roads is that their shortcomings in maintenance and quality is due primarily to the fact that they are "public."  Private ownership necessitates conservation as to maintain value.  Human action is unpredictable but doesn't tend toward self destruction in terms of maintaining cash flow.  The pollution of communist China is testament to the "tragedy of commons" which dominates all public property.

The number one question I have encountered in advocating for a privatized road system is "what would it look like?"  The truth is that's impossible to conceive what a road system would work under complete private ownership.  Twenty years ago, Joe Public couldn't have imagined that in just a few years he would have access to the internet and have an abundance of information literally at his fingertips.  There is just no telling what entrepreneurship will bring to building roads.  For all we know, it could resemble something out of futuristic novel.

It should also be noted that road construction in Toronto is basically a public bailout:

Unnecessarily strict rules for employing paid duty police officers are costing Toronto taxpayers as much as $2 million each year, a city audit has found.

The official findings won’t be released for weeks, but a draft copy obtained by the Star recommends reviewing some “debatable” permit criteria, particularly for road work.

“When construction takes place close to a signalized intersection, there are certainly situations where a paid duty officer would be needed to direct traffic,” the report says. “However, there are also situations where the use of warning signs, barriers and other devices … would be sufficient.”

The auditor’s findings mirror those of a December 2009 Star investigation that found private companies, taxpayers and community groups were forced to waste millions of dollars hiring paid duty officers for jobs that could be done by crossing guards or even pylons.

-------------------------------------------------------
I will work on it a bit tomorrow but my time is really limited this week due to black Friday coming up.

I wanna end by pointing out this great video of Ron Paul dealing with a bunch of Occupy Wall Streeters who caused a small situation at one of his speeches:

He is forever a gentleman.