I’ll Take the Frying Pan over the Fire

Via Ars Technica, here’s a Quad-Cities Online report on the state of Illinois using $1 million in taxpayer dollars to fund litigation in support of an unconstitutional ban on video game violence. The money was taken from other budget areas, including public health, welfare, and economic development.

The ideal would be to give the money back to taxpayers. It rightly belongs to them. But given the choice between using the funds to erode free speech rights or using them to support the welfare state, I’ll take the welfare state.

The Search for the Libertarian Vote

An NPR report on independent voters in Nebraska included this comment from a hospital diversity director: “There’s a large group of people in this country that believe in smaller government, that believe in balanced budget. I think that’s a pretty popular concept. Where [the Republicans] run into trouble is strict adherence to a couple of social issues.” As we’ve been saying.

What does a diversity director do in Nebraska, anyway? I’m thinking he tries to persuade people that “the farmer and the cowman should be friends.”

Of Tax Credits and Government Subsidies

Previously on Cato-at-Liberty, Michael Cannon (post 1, post 2) and Andrew Coulson (post 1, post 2) argued with Jason Furman (on health care) and Sara Mead (on education) about the nature of tax credits and tax breaks.

Furman and Mead claim that tax credits and breaks, because they represent forgone tax revenue, are little different than government subsidies (with a raft of implications). Cannon and Coulson (for various reasons) disagree.

The great “a-ha” moment of the discussion came when Mead pointed to Cato scholars’ criticism of ethanol tax credits as subsidies or “tax expenditures.” Even other Cato scholars agree that ‘tax credit’ equals ‘government subsidy,’ she says.

Surprisingly, up to this point, the argument has largely ignored the use of the credited money/forgone government revenue. I would argue the use of the credited money is fundamental to determining if the credit/tax break is a subsidy.

In the case of an education credit, it is true that government would lose revenue because of the credit. But government has also assumed the obligation to educate the nation’s children, and government would be released from that obligation in the case of the child whose schooling is funded by the credited money. Is the credit, thus, a subsidy?

Consider: If Joe owes his bank a $10 fee for its services and, instead of sending Joe a bill, the bank simply deducts that amount from his account, we wouldn’t describe Joe as subsidizing the bank (or the bank as subsidizing Joe). Likewise, if government has assumed the obligation to educate little Johnny, but instead Joe pays Johnny’s tuition and receives a government tax credit as a result, it seems incorrect to say that Joe has received a subsidy. Instead, just as with the bank and Joe, the education credit represents a net adjustment of Joe’s obligation to government and government’s obligation to little Johnny.

Now, there may be reasons why government should not make this adjustment, but those reasons would not include that the adjustment is a subsidy to Joe. The only subsidy in this system is government’s taking on the obligation to provide little Johnny with schooling — a subsidy that I assume Mead finds acceptable.

Parenthetical #1: I suppose there is one condition under which Joe’s education tax credit should be considered a subsidy: if government education expenditures aren’t about educating Johnny, but about providing jobs for unionized public school workers. Thus, Joe’s paying for Johnny’s tuition at a private school wouldn’t be fulfilling government’s intended obligation. But surely, no one thinks that government education policy is about benefiting unions and bureaucrats instead of educating kids, right?

Health care tax benefits (e.g., HSAs, tax deductions for medical expenses, the tax-free status of employer-provided medical coverage) are a murkier subject. There is no explicit government financial obligation to provide the entire nation with health care (though supporters of socialized medicine claim there should be such an obligation — and, I assume, they are intellectually consistent and support tax breaks and credits for the private provision of health care).

There are, however, legally established government obligations to provide health coverage to the poor (Medicaid, SCHIP, et al.), the elderly (Medicare, Medicaid, et al.) and to guarantee everyone access to care. It may be that the various medical tax credits and insurance tax breaks help government to fulfill those obligations at lower cost than other policies. If that is the case, then tax breaks and credits may be part of the optimal policy for fulfilling that obligation (and Furman would be arguing for a policy change detrimental to welfare).

Parenthetical #2: Full disclosure here — I’m of the camp that health care expenditures should be treated no differently, tax-wise, than other expenditures, and that government has no special a priori obligation to provide health care or health coverage.

Now, juxtapose the above two situations with ethanol tax credits and the other sorts of tax breaks that Cato scholars regularly decry. While there are legally established government obligations to provide schooling for children and health benefits to certain sub-groups of the population, there is (that I’m aware) no government obligation to provide American citizens with corn-based energy for transportation.

Parenthetical #3: I ignore the wacky claim that the U.S. government has an obligation to provide ”energy security” so the nation is protected from evil Canadian and Mexican oil sheiks.

This means that there is no government obligation that ethanol producers can fulfill privately, and thus receive a tax credit or tax break. The ethanol industry’s tax breaks and benefits are not simply “squaring accounts” in the manner as Joe, little Johnny, and the government. The ethanol tax benefits seem to be clear cases of government subsidy, and they should be criticized as such.

Where does this reasoning leave the discussion between Cannon and Coulson on the one hand, and Furman and Mead on the other? At the very least, it seems Coulson’s position is fully consistent with Cato’s general critique of subsidies. Further, given the premise that government has some special obligation to provide health care, Cannon’s position also seems consistent with Cato’s general critique of subsidies.

I am curious, though, whether the Left’s sudden concern over subsidies is consistent with positions they take on health care, education, and other policy areas….

State to Young People: You Belong to Me

Under the benign headline “Turning Apathy Into Good Deeds,” former secretary of defense Melvin Laird endorses a strikingly authoritarian proposal: “a system of compulsory universal civil service for young people.” Laird recognizes that the military doesn’t need all the recruits a draft would produce and that today’s high-tech military needs longer-term training and commitment. But the drawn-out war in Iraq threatens to discourage future enlistments. So “universal service” might pressure just enough young people to join the army, while also producing a bumper crop of slave labor for schools, Head Start, Peace Corps, hospitals, the Department of Health and Human Services, and the State Department.

Laird thinks such a program would “foster a culture of responsibility for our democracy.” Not among free and responsible people, it wouldn’t. It may be no accident that Laird repeatedly mentions democracy, but the words freedom and liberty–the fundamental values of America, which our constitutional republic was created to protect–do not appear in his piece.

Laird does not address how you square compulsory service with the Thirteenth Amendment to the Constitution: “Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.” Laird’s proposed “service” is clearly involuntary.

For generations and centuries, old people have complained that today’s young people just don’t appreciate the sacrifices of their elders. They talk too loud and they don’t care about the community. They need, in the words of William James, “to get the childishness knocked out of them, and to come back into society with healthier sympathies and soberer ideas.”

And meanwhile, they can do a lot of useful things that we older taxpayers would like to have done but don’t want to pay for. After all, in a market economy, if you want more people working in hospitals or day-care centers, you can pay them to do so. And if you don’t think $2.9 trillion is enough to pay for all the useful services of the federal government, you can propose a tax increase. But how much easier it might seem just to commandeer four million free or cheap laborers.

Of course, they’re not really so cheap. You do have to pay them something. And you’ll need massive new layers of bureaucracy to manage four million people (the approximate number of Americans who turn 18 each year).

And then there are the opportunity costs.  Workers will be allocated to government make-work jobs instead of the jobs where the market demand is strongest. The economy will be less efficient and less productive. As Doug Bandow writes, “paying young people to sweep floors entails the cost of forgoing whatever else we could do with that money and the cost of forgoing whatever else those young people could do with their time. An additional dollar spent on medical research might be a better investment than one used to add an extra hospital helper; an additional young person who finished school and entered the field of biogenetics might increase social welfare more than one more kid shelving books in a library.”

What kind of message does compulsory service send to young people? It tells them that they are national resources, state property, that they do not own themselves. That’s not the message the Founders thought they were sending in the Declaration of Independence and the Constitution. It’s not an attitude appropriate for citizens of a free society. It’s a collectivist, authoritarian concept. It says, with much less charm than the old song, “You belong to me.”

Melvin Laird should be ashamed. So should John Edwards.

Sweden Is a Tax Haven?!?

Okay, the headline is an exaggeration, but Sweden’s decision to eliminate the wealth tax already is paying dividends as successful Norwegians contemplate moving across the border to escape Norway’s even more punitive tax regime.

Other Nordic nations, including Denmark and Iceland, already have abolished their wealth taxes, so hopefully tax competition will force Norway to end this punitive form of double taxation:

There are not many countries in which Sweden would be considered a tax haven, but one wealthy Norwegian says she plans to move across the border now that the government has scrapped the wealth tax. Caroline Hagen is the daughter of Norwegian financier Stein Erik Hagen, and plans to take advantage of the less severe taxes under the new centre-right government. Her sister Camilla could soon follow. Stein Erik Hagen, whose family-owned holding company Canica has major shareholdings in a number of retail companies and consumer goods firms, said that Sweden’s decision to axe the wealth tax would encourage many more wealthy Norwegians to cross the border.

Hot Stock Tip

“For the past four years, the Clintons have jetted around on Vinod Gupta’s corporate plane, to Switzerland, Hawaii, Jamaica, Mexico — $900,000 worth of travel. The former president secured a $3.3 million consulting deal with Gupta’s technology firm,” according to the Washington Post.

The hot tip? Short the stock of any technology firm that values Bill Clinton’s advice at $3.3 million.