"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."--F.A. Hayek
11 July 2011
President Obama is engaging the Republicans in a game of chicken over the debt ceiling, insisting that tax increases be part of any deal. Regardless of the fact that back in 2009 he said, “the last thing you want to do is raise taxes in the middle of a recession because that would just suck up – take more demand out of the economy and put business further in a hole.” Which is similar in reasoning to something I posted right before he said it.
Now, just to clarify where I stand on a few things: restoring the marginal tax rates to pre-W levels is, in fact, a tax increase (even if it is only on those rates paid by those bastards who just have too much damn money). Whether you wrap it in the language of "letting them expire" or whatever else. If the government takes 35% of the money you earn over $379,150 in 2011 and then the next year the government takes 39% of that money, you are paying higher taxes. The government has effected a tax increase. Period. Full stop.
But the Republicans are playing a little fast and loose with the definition of "tax increase" themselves. Some Republicans, apparently under the sway of a little gnome named Grover Norquist, have said that eliminating tax subsidies, specifically those enjoyed by oil and gas companies, is the same thing as a tax increase. No, it isn't. Any special cut away for any firm or industry for whatever reason creates market distortions and inefficiencies. Yes, it is more efficient for a firm to spend its own money the best way it sees fit, but it is inefficient (along with unfair and immoral and it rightly gives the impression of bribery) for any firm or industry to be given any special favors regarding taxation by the legislature. Even if everyone thinks it's a good idea. This goes for oil companies, agribusiness, sugar producers, colleges and universities, mortgage holders. Everyone.
Now these are not "loopholes," they are intentional favors enacted by congressmen of both parties. For a fuller, and better, exposition on this matter please see this post by Kevin Williamson.
I really don't care how this is settled, because it will be a deal between and among politicians and the only ones who will end up getting screwed will be the rest of us.