This letter of mine was published in yesterday’s edition of USA Today:
Raising taxes on private firms is a mistake
Donald J. Boudreaux, chairman, Department of Economics, George Mason University – Fairfax, Va.
Rep. Eric Cantor, R-Va., is correct that raising taxes on private
equity firms is neither necessary nor appropriate for fixing the
alternative minimum tax (AMT) ("Don’t hike partnership taxes," Opposing view, Taxes debate, Dec. 6).
The reason, however, is more fundamental than the fact that such firms benefit ordinary Americans.
Not indexed for inflation, the AMT was never meant to tax the
millions of Americans whom it will now tax if Congress doesn’t fix it.
In other words, taxing people in this way is a mistake.
What ethical argument justifies Congress shifting the costs of its mistake onto others?
If Jones mistakenly budgeted to spend dollars that he wrongly
thought would come to him from Smith, is Jones entitled then to take
this amount of dollars from Williams in order to "pay for" correcting
his error?
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Given that the entire basis of government consists of forcibly taking people's money, I'm not sure an analogy to a voluntary free market transaction is appropriate here.
I'm also dubious of the claim that failure to index the AMT for inflation was a "mistake" rather than an intentional oversight. Did congressmen not know about inflation in 1969?
Shouldn't the analogy note that Jones is spending money which he expected to get only from Smith, but in reality is coming from Johnson in addition to Smith? The budgeting error to be "made up" by Williams is the now relied-upon monies garnered from Johnson whom Jones wants to stop dunning. If it were just Smith, there wouldn't be an AMT issue.
"Did congressmen not know about inflation in 1969?"
Well, we *are* talking about congressmen, after all.
Nathan makes valid points, but I will throw congressmen one bone. They did not know much about inflation in 1969. Inflation became the problem we thing of today only after Nixon floated the dollar in 1971. Of course, there was some stress during the 1967-1971 period, but by 1969 the inflationary effects were mild compared to what would happen later. Most tax items written prior to the great inflation of the late 70s and early 80s were not indexed.
Although the AMT gets all the attention, I think the biggest negative impact of inflation involves capital gains taxes. Many are forced to pay taxes on investment gains that are nothing more than inflation.
I'm with Nathan on this one. Don made a good point, but there really isn't any purely ethical argument for a government at all. Criticizing the government based on ethics is like calling the guy who is mugging you ugly: he doesn't care, and he still has the gun.
Good one, G
I think it's a very quaint notion that the government should be required to modify laws to address their unintended consequences. It would certainly keep them busy.
I have paid the AMT and have trouble making a moral issue out of it. It's just another way of calculating taxes, just as arbitrary as the first.
My anger with it stems from the fact that it seems like we could get buy with one set of arbitraty rules.
But then, I suppose one could argue that the "pay the greater of calculation A or calculation B" is just one calculation…
No more than failing to index (going on 30+ years now) the corporate income tax to inflation was a mistake.
I presume the reason for a lower capital gains tax rate is to offset (imperfectly) inflation without the hassle of indexing basis to inflation.
I find the logic here a bit strained.
I would agree that Congress should
be blamed for the "mistake." After
all, since 1969 there has been lots
of indexing of such things in the tax
code as the brackets themselves. It
would seem that the real mistake was
to have forgotten about the AMT limits
when that was done, which was well after
1969.
Regarding getting all soggy over taxing
private equity firms, what is so special
about them? If one is going to be revenue
neutral, which the Congress is most
definitely not being in this, partly
pushed by the irresponsible Bushites,
then somebody has to get taxed to make
up for the revenue shortfall. I am not
saying that the private equity firms
necessarily should be the ones who get
hit, but I do not see anybody else being
suggested here. Maybe we should be
hitting on the "sin" taxes again, since
the private equity firms are supposed to
be so virtuous?
And on another note, some time ago The
Economist pointed something rather curious
out. If one wants tax simplification, and
I am much more of a supporter of that than
I am of mindless cuts for the rich, or just
mindless tax cuts without spending cuts
period, both of which we have seen plenty
of in the last few years, then one way to achieve this very easily would be to simply extend the AMT throughout the entire federal income tax code. Of course, that is not going to fly politically, but it might be more reasonable than what is being done now, with or without taxing the private equity firms.
A post in iambic pentameter!
Outstanding!
Or was that a formatting error?
Regardless, very nice. Except for the tax cuts for the rich part.
Nonsense, said he, with
flag unfurled…
And the part about The Economist.
I have never read a publication so alarmingly mislabeled as this.
This last week Rush suggested that Sarbox legislation should apply to congress. This makes good sense to me.
If the congress-critters don't fully disclose results, if they falsify data, or if they deviate from generally recognized standards for information to hide data — they become personally liable for their malinvestments and mistakes.
Barkley,
I agree with you that we need spending cuts. However, tax RATES were cut – not taxes, and it was an across-the-board rate cut. Everyone who pays income taxes got a rate reduction with the largest percentage reduction going to the lowest-income taxpayers. The results of that tax rate cut are that the top one percent of income earners are now shouldering even more of the income tax burden than ever before and revenue is pouring in to Washington.
There are a few trolls here that believe that if the rich are still rich after taxes are levied that the system isn't progressive enough, but you don't strike me as being in company with those three :p
"mindless cuts for the rich," he says.
As if 99% of our tax code had any "mind" to it.
Congress just passed the energy bill and magically declared that autos will be 40% more efficient by 2020.
They should wave the same wand and demand that government be 40% more efficient by 2020.
Think we'll get a refund when income exceeds outgo?
Note to self: Demand all employees be 40% more efficient by 2020. Start looking for new condo.
I don't know…
I interpret the tax code as allowing blue state residents to pay less federal tax simply because they're stupid enough to tax the hell out of themselves at the state level. They look at their steep local taxes bill and see them as justification for demanding that red-staters should pay more federal income tax instead.
I agree with the notion that relieving an unintended tax shouldn't require finding an alternative revenue source (how did the government come to be dependent on money it was never supposed to get, anyway???).
But I don't buy into the premise that blue-staters can excuse themselves from the federal pot by diverting their money to their home states first. Maybe if they had to pay both taxes — in full — they'd rethink all these tax monster Democrats they apparently send to Washington for the express purpose of enslaving people in other states.
I'm in a red state. Working "correctly," the AMT is supposed to make me pay a bigger share of income taxes than all the people we're supposedly worrying about having to pay the AMT next year. As far as I'm concerned, it's not ensnaring enough people until every Democrat voter in a blue state is paying it.
Good point, cpurick. I too have considered the idea that a creeping AMT may solve more problems than it creates.
Barkley Rosser,
How about some mindless spending cuts for any and all special interests to offset the mindless tax cuts for the rich?
cpurick –
Since we really can't individually do anything about taxes, maybe we need to individually do something about spending.
It's my understanding that about half the country is eligible for some level of assistance through the food stamp program run by the department of agriculture. Since the system is based upon an understanding that most of those eligible will not apply — I think we should all apply.
When we're done with food stamps we should all apply for health care assistance, rent subsidy, and anything else we can get.
We should overwhelm the system with demands that would require them to review their admission standards. This process would at least allow some protesters to receive a rebate in the process of staging a protest.
How d'ya figure they'd spin that one?
But I don't buy into the premise that blue-staters can excuse themselves from the federal pot by diverting their money to their home states first.
Well, that's one way to look at it. Another is — why should I have to pay federal taxes on 'income' I never saw because my state government snatched it before it got to me?
"why should I have to pay federal taxes on 'income' I never saw because my state government snatched it before it got to me?"
It's an income tax because you get taxed on what you earn, not what you take home. Your income tax gives you no deduction for your payroll taxes — why should you be able to deduct your state tax?
Are states allocated any less federal money on the basis of how much more state tax they collect? If not, then I fail to see why their residents should get any federal discount for state taxes paid.
For the record to one and all. I am all for being "mindful" when dealing with either the spending or the taxing side.
Taxing people with AMT tax and rising taxes on private equity firms are not bad per se, I beleive. It is just a matter of justice, and the right amount in every case.
"They should wave the same wand and demand that government be 40% more efficient by 2020."
LOL Like that will ever happen!
Even a government 10% better would be a huge improvement!
I would agree that Congress should
be blamed for their "mistake." It
would seem that the real mistake was
to have forgotten about the AMT limits.
Regarding taxing private equity firms, what is so special about them? Taxing people with AMT tax and rising taxes on private equity firms are not bad, I believe. It is just a matter of justice. Somebody has to get taxed to make up for the revenue shortfall. I also agree with the notion that relieving an unintended tax shouldn't require finding an alternative revenue source (how did the government come to be dependent on money it was never supposed to get anyway? I am not saying that the private equity firms
necessarily should be the ones who get
hit, but I do not see anybody else being
suggested here.