Do targeted tax breaks give you more choice?

Constant and I have been having a debate in the comments entry to a prior post.

His most recent reply argued that targeted tax cuts give you more choices, because you have an option to do what the government wants and so pay the government less.

In a certain narrow sense this is true. If you don't have the tax break you don't have the possibility of taking advantage of the tax break. But tax breaks don't exist in such splendid isolation. They are part of a larger tax code, and the break itself has effects beyond just the effects on the person who can take advantage of it.

You can say that a targeted tax break is giving you the option to do X and get some benefit from the government. But its just as reasonable to look at the whole picture and say that such targeted tax break is not a break but rather a penalty for not doing what the government wants.

True you don't have a simple one for one situation where imposing tax break X will cause rates to increase, or getting rid of tax break Y will cause rates to decrease, but there is a connection between the two. If you have a high number of targeted tax breaks you are likely to have higher tax rates (then you would otherwise have had).

Instead of looking at the choice to eliminate one specific highly targeted tax break or keep it in place, imagine instead the hypothetical where there is a proposal for an extra hundred thousand targeted tax breaks? Is it really wrong or "anti-libertarian" to oppose the plan? I don't think so. Such a plan is a mess, and will cause more harm then good. Its likely to result in higher base rates for taxes (absent a reduction in spending), and the higher base rates are not the only source of harm from the proposal.

Looking at such a huge plan its obvious that you have an attempt on the part of politicians to control society. Giving politicians that additional control is a harmful. Its harmful because it distorts incentives and gives less efficient results, but its harm extends beyond that. I submit its intrinsically harmful. Even if the politicians could and did make choices for people that where better then the choices they would make for themselves (and in general terms that will never be the case), greater power in the hands of politicians is harmful to freedom. That's still true even when the power can be expressed as giving people more choices.

What's true for the huge proposal is also true, on a smaller scale for individual targeted tax breaks. They allow greater government/political control.

When you combine the harm to freedom from that greater control, with the practical harm caused by compliance costs and the fact that these political decisions often provide perverse incentives and lower efficiency; its obvious that a complex tax code full of such targeted breaks is hardly something libertarians should be supporting.

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Tim,
I fixed your link. Remember that you can use the WYSIWYG buttons to insert hyperlinks.
Nice first post. Keep it up.

tax breaks

Even if the politicians could and did make choices for people that where better then the choices they would make for themselves (and in general terms that will never be the case), greater power in the hands of politicians is harmful to freedom.

My argument is independent of whether the politicians make good choices. The tax breaks could be on cigarettes, fast food, middle-aged hookers, and bungee jumping. As long as it's a pure tax break, without any "compensating" rise in taxes, then I am not harmed by it.

Instead of looking at the choice to eliminate one specific highly
targeted tax break or keep it in place, imagine instead the
hypothetical where there is a proposal for an extra hundred thousand
targeted tax breaks?

If it's too complicated to deal with, I can just ignore it, saving myself the cost of discovering what it is. I'm going to take the trouble to deal with the new complexity only if I think that I will benefit on balance by doing so. When filling out the income tax return, I can simply decline to claim any deductions, which will result in my paying the tax that I was paying before the tax breaks. Of course if there's a "compensating" rise in taxes then I'm worse off but I think I pointed this out myself early on.

Its likely to result in higher base rates for taxes

Maybe, maybe not. This is the kind of issue that never seems to get resolved (whether A causes B).

(absent a reduction in spending)

Spending is not an independent variable. I'd say that changes in spending are closer to being dependent on changes in revenue than the other way around.

You can say that a targeted tax break is giving you the option to do X
and get some benefit from the government. But its just as reasonable to
look at the whole picture and say that such targeted tax break is not a
break but rather a penalty for not doing what the government wants.

I think I've said pretty much the same thing, though importantly, not quite the same, as I'll explain. To simplify, imagine three levels of taxation:

a) low taxes on everything.

b) high taxes on some things and low on other things.

c) high taxes on everything.

If you're looking at (b), you can grouse about how it's worse than (a) because (b) is filled with a bunch of penalties which are not present in (a). Or, alternatively, you can point out that however bad (b) is, it's not as bad as (c) because in (b) there are certain things you can do to get low taxes, but not in (c). So you can look at (b) in two different ways.

What I'd like to point out, however, is that while you can reasonably look at (b) in two different ways, (b) is not a "tax break". Rather, a "tax break" is a movement from (c) to (b). And while it is true that (b) is worse than (a), this does not change the fact that a movement from (c) to (b) is an improvement.

Tax breaks aren't always better

 

Looking at your three posibilities

a) low taxes on everything.

b) high taxes on some things and low on other things.

c) high taxes on everything.

 

I would say that I would generally prefer b to c, but -

1 - Targeted tax breaks can move you from a to b rather than c to b. Considered in isolation they may be more likely to give you something closer to the latter, but in the real world the tax break is not a one time isolated choice that doesn't effect anything else in the tax code or political debate.

2 - c can in fact be worse than b, if the incentives are pervise enough, and harm to third parties is considered.

Selling favors

I think in the real world, we often move from c (high taxes) to b (high taxes on some things and low on other things).

The natural motivation is for powerful organizations to focus resources on getting legislators to grant them a favor. The legislator receives a specific benefit (campaign support, for example) and risks only a very minor and diffuse harm (he or she may be imperceptibly limited in the amount they can spend). If the favor to the lobbying organization were kept secret and later discovered, the legislator would be at a greater risk of prosecution or scandal. Therefore, a financial benefit gets window-dressed as another section of the tax code, and a competitive benefit is dressed as licensing or higher regulatory standards.

I think you give legislators too much credit for seeing the big picture of government income/expenditure and wanting to keep it controlled. There are many legislators, each with their own agenda--typically to stay in power by giving more favors to their constituents then could political rivals--and I think only a very few feel that responsible fiscal behavior will serve that agenda.

Credit? Not really

I think you give legislators too much credit for seeing the big picture of government income/expenditure and wanting to keep it controlled.

 

I give them almost no credit along those lines. I think in the short run imposing a new targeted tax credit is likely to decrease the total tax burden. I just don't think there is any long run reduction of the burden from the tax credit while there is a long run increase in the complexity of the tax code.

Long Run

If you are talking about what happens in the long run, I will grant that history shows both increasing complexity in the tax code and an increase in the tax burden. I don't think they are inversely proportional, though.

A general, across-the-board decrease in tax rates occurs if and only if a politician sees that as a way to gain power by giving their constituents favors. The planets probably align best for this when challengers gain a new office.

A simple tax code would benefit me most by saving me time. But I make a point of looking for ways to actively reduce my taxes by digging through all those tables and forms. I would rather be able to pay next to nothing with some effort, than have a high tax burden that was impossible to avoid. And I would rather fight the system by reorganizing my life to keep money out of the government's hands than by joining in unity with all other citizens to request that I please keep more of the fruits of my labor.

Reorginizing your life

 

I'd rather that you and I don't have to reorganize our lives in order to keep more of the money we earn.

The benefit of doing so on a practical level compared to "joining in unity with all other citizens to request that I please keep more of the fruits of my labor" is that reorganizing your life to the current tax code can have a quicker and more certain pay off. And certainly having lower rates and simplier tax rules would be preferable, even if the total tax rate was the same. As you point out it would save you time, and also it would end the requirement that you reorganize your life.

Giving people more freedom with tax breaks

Hypothetical Admission:

You know I'm ashamed to admit it but I live in a college town and I've been beating up the sorority girls on their way to college and taking their lunch money. I thought I'd give them a little more freedom today by allowing them to keep some of the money if only they'd only give me a blow job. That's what I call "giving the girls more freedom". ;)

The relevant comparison

The relevant comparison is between:

a) The man who beats every girl and offers her no way out.

b) The man who offers the girls the choice between exactly the same beating as (a), or the blow job.

Obviously (b) is evil, but if we are talking about the comparison with (a), then which is worse? If the girls all ignore the offer and are beaten, then (b) is no worse than (a). However, if one girl chooses the blow job over the beating, then by what argument is she worse off than she would have been had she been beaten without being given the choice?

It is idle to point out that both (a) and (b) are evil and that the person who inflicts the lesser evil is hardly to be congratulated for it. This is true but is beside the point, since the question is not whether the man in (b) is evil but which represents an increase in harm: a move from (a) to (b), or a move from (b) to (a).

Tweaking the example a little more

As a thought experiment, what if the man decides capriciously which girls get the offer? What if he has secret methods, designed to manipulate all the girls behavior, for deciding who is offered a choice?

I think part of the difference in point of view is that we are employing two moral rules in our discussion of tax breaks:

  1. Inequity is bad.
  2. Intentions matter.

Are the differences between the positions of Tim and Constant due to different emphasis of these rules?

Leftists are often criticized for holding these two rules above all else. I expect these rules have an appropriate place in making judgments (the first perhaps in zero-sum games), but I part company with people who make these rules prior to the rule about respecting others' liberty.

Applying "inequity is bad"

Applying "inequity is bad" to inequity of mistreatment is precisely what I call isodomy. When I formulated it, it went that way:

Dirty Robert, a pedophile, goes to the park every morning and rapes all the children, in front of the helpless parents (dirty Robert is scary and armed). One day, he decides he will not rape little Mike anymore but continue raping the other children, hell he even rapes then more ! The parents start complaining it's unfair that little Mike isn't being raped every day and thus they ask dirty Robert to resume raping him, after all inequity is bad isn't it. If they do that, they've become accomplice in the rape of little Mike.

Similarly, if one opposes a tax cut that doesn't create additional taxes, or if one wants a tax cut that did creat additional taxes repelled, he becomes an accomplice of the crime.

 

Exactly

I think Tim is assuming that taxation is a zero-sum game. There is a certain level of taxing (or raping in your example) that occurs no matter what and alleviating harm to some will increase it to others.

Of course, there are some good reasons to mistakenly think it is zero-sum:

  • Dirty Robert constantly tells you that raping, like death, is inevitable, and you should just sit back and enjoy it.
  • Dirty Robert says that his victims have some secret guilt that makes them deserve his punishment.
  • Dirty Robert threatens to harm children and parents even more if they don't repeat his lies.
  • Parents must solve the cognitive discord that they are allowing their children to be raped, so they tell themselves that there is nothing to be done about it. If someone tries to do something about it, the other parents either passively or actively encourage his failure so they can protect their opinions of themselves.
  • Dirty Robert sets up institutions to indoctrinate children from the age of five about how important it is for them to be raped regularly by him. He makes them swear an oath of allegiance to him every morning.

I'm going to stop the list here--I'm feeling a little ill... Where's my blue pill?

Not exactly a zero sum game

 

Maybe "sortof a zero sum game" could describe my viewpoint, for lack of something more precise. I don't think that every decrease in taxes for one person or group, causes an increase in taxes for everyone else. But I do think that a sufficent number of targeted tax breaks will in general tend to put upward pressure on tax rates.

Separate issue

You'll get no argument from me as far as opposing an increase in taxes. But to oppose tax breaks on the argument that the tax breaks will cause the government to increase tax rates elsewhere is consequentialist, and is therefore doubly unpersuasive to me. Unpersuasive because I am simply not much moved by consequentialist arguments, and unpersuasive to me also because the purported causal connection between breaks and rises seems to me to be weak in any case.

I think that one of the pitfalls of consequentialism is blindness to the multiplicity of consequences. We humans tend to be narrowly focused and so we tend to ignore everything except certain obvious effects. Combine this narrowness of vision with consequentialism, and you have a recipe for disaster.

consequentialism

I'm not purely a consequentialist, but I am moved by consequentialist arguments.

I agree that consequences are often complex and hard to determine, and I think people should recognize this, but I don't think its a good idea to ignore the consequences of actions and decisions.

No one can predict for sure

No one can predict for sure what the consequences of their action will be, therefore one cannot be expected to act ethically according to the consequences. We can only judge the act, and define a set of acts, illegitimate acts, for which we have to bear the consequences.

Consequences and predictions

 

The fact that you can't be sure doesn't mean you can't or shouldn't take consequences in to account. Acts don't become ethical or unethical just because of how things turn out in the end (If I try to murder you with a rifle, and I miss, and the sound of the shot scares away a wild animal that would have killed you, so my murder attempt saved your life, that doesn't make the attempt a moral good). But the likely conseqeunces of an act should enter in to decision making, and can even change the moral nature of the act, and what we call it.

An you are assuming it isn't zero sum

I think you are assuming that if the government takes in less taxes now that that will limit it's spending.

Suppose you and your ten siblings have an evil stepuncle, Sam, who forces you to cosign an open ended loan from which he can draw funds.  He forces you and your siblings to make the loan payments.   Now suppose he's controlling and uses the incentive of letting you make smaller payments to get you to do things.   Meanwhile the debt increases and all the siblings are on the hook.    Isn't it obvious that if he lowers the payment for you that he has to either increase his take on the others or let the debt balloon which will cause larger payments in the future, presumably ones you will continue to get a break on.

I don't see how lowering taxes on you doesn't increase the burden on others unless the act you are incentivized to take somehow cuts down on Uncle Sams expenses.  For instance, if he gave you a break on your payments for taking him out to dinner, which he would normally charge against the loan.

Unless the tax break is tied to a reduction in Uncle Sams expenses (in some way) it is guaranteed to shift the burden to others.   This doesn't happen as long as Uncle Sam can borrow.  He doesn't have to curb his behavior because he gave you a break.  

Assumptions

 

I think a lot of the disagreement is based on the different assumptions people make. If you assume no other changes a targeted tax break sounds ok (unless it produces very perverice incentives). If you assume that sooner or later any targeted tax breaks or collection of breaks that are large enough to have a serious impact on revenue will tend to cause other rates to increase, then fewer people are likely to support it (unless they support it because they get the break, or because the break helps their pet cause).

Not giving more choice but allowing the mitigation of harm

<p>The choice was a beating, giving the money, or a BJ, not just a beating vs. a BJ.   What  the fellow was doing was allowing some of the girls to mitigate their harm.   They always had the option of giving him a BJ at any time the wanted.  The fact that they didn't means that they didn't want to.</p>

<p> In fact any of the women have the choice of giving him money and/or sex even without any threat of a beating on his part.  All he's giving them is options to mitigate the harm he will cause them.   Not a real increase in freedom of choice.</p>

<p>Also notice that this BJ option sort of outrages us more.  Why is that?   Well I think it's because our moral calculators notice a few things. </p>  <p>Most people value the money less than the humiliation of giving a forced BJ.  Because of this most of the women will give the money instead of the sex. </p>  <p>If all the women give the money then the criminal in this case has an incentive to increase his analog "taxes" or the analog "tax break" to the point where someone starts taking his offer.  He can go either way so the tax break is not entirely independent from the additional option being offered.   It could be but humans interpret other people as agents and in this case it's obvious that the criminal values the BJ more than the money he is receiving.   So we assume correctly that as an agent that if he is offering BJs as a way out he  is going to try to drive the women in that direction.   Of course, it was never his money to begin with so what's to stop him from making an increase in his “tax” charges in order to move the women in the direction of providing more sex. </p><p>Now of course the women are going to see through this divide and conquer strategy and are going to be mad at the other women who give in.    The women who give in are actually giving additional sanction to the predator.   By choosing the BJ they are lowering the social stigma of the act and degrading the value of what the other women have.  </p><p>Now of course this is not completely analogous to the government.   To be analogous the fellow would have to be providing a service to the women, like a pimp.   Same goes for the child molester example in one of the other comments.   There’s no “fairness” issue so long as no benefit is being given in return for the taxes. </p><p>The fairness equation here also depends on the type of behavior the tax break is giving an incentive for.   If the incentive is given to provide a public good the government is already providing that is one thing.  For instance, a tax break for building roads doesn’t naturally drive up the tax burden on others.   Many tax breaks however will naturally have the effect of shifting additional taxes onto others given the same level of spending. </p>

 

A increase of choices in the

A increase of choices in the mitigation of harm is always an increase of choice. The fact that it comes from the harmer doesn't change it. What is outrageous in the blowjob scenario is merely that it implies the girls would value giving a bj to a stranger at a lower cost than their lunch money, which is a bit insulting, that's all.

I'll increase your choice

You want me to incread your choices?  Do you want me to punch you in the face or kick you in the nuts?  Those weren't options you had available till my kind offer. Claiming that's an increase in choice implies my threats are a good thing.   

Now obviously depending on  the circumstances giving you those extra choices might be a good thing, but to use the very "increase in choice" as a metric for deciding that an action is good or bad is improper.   In fact sometimes limiting choice is a good thing.   Like when I don't allow my kids the choice of how late to stay up on a school night.

Get my point now?   Who gives a damn if tax breaks "increases choice" some individuals choices if that choice harms others indirectly.   The government has increased the choice of law enforcement on how they can confiscate cash by allowing them to treat large sums as probably drug proceeds.  Do you like that increase in choice?

You want me to incread your

You want me to incread your choices? Do you want me to punch you in
the face or kick you in the nuts? Those weren't options you had
available till my kind offer.

 

You are restricting my choice because you are not offering me not to be molested at all, a choice I had prior to your intervention. In the case of the State, I know he is going to punch me in the face anyway; if it offers me a choice to be kicked in the nut instead, he is purely increasing my choices.

No I multiplied your choices

Sure, I'm offering not to molest you at all also.  Prior to this one time offer I was NOT offering to molest you.  Now I am.    In fact if you had come up to me prior to this point and begged me to do those things I would not have done them.  So I was purely increasing your options.  

Now I could have at the same time also removed the option of not being molested.   So I would be both increasing and decreasing your "choices".    I could have given you a thousand new ways that I would molest you multiplying your choices to the point where you would have to log into a website just to view and select from all the new choices.  At the same time only removing a single choice, your choice not to be molested.

How you interpret my modification of your choices depends on what you value.  Perhaps you like the new options and really didn't care not to be molested.   You might just be into these kinds of things.

Besides isn't the whole law enforcement thingy about limiting some peoples choices to allow other people more choice.   Seems like there is always a group tradeoff.  Same with tax breaks.   Sure your options may be increased but someone elses may be decreased.   What's right can't be decided on the issue of choice.   Otherwise criminals could rightfully bitch that your cramping their choices by enforcing the law.  

Tax Revenue vs Spending

Constant,

Spending is not an independent variable. I'd say that changes in spending are closer to being dependent on changes in revenue than the other way around.

It's unlikely that aggregating positive and negative changes makes any sense.

Increases in revenue have proven to lead to super-sized increased spending, as the borrowing of FICA surplus revenues by the general fund has shown, with every added dollar of revenue leading to $1.72 in additional spending. Only someone who is unconscious would expect spending to fall as much as half of any decrease in revenues.

Regards, Don

 

its obvious that a complex

its obvious that a complex tax code full of such targeted breaks is hardly something libertarians should be supporting.

A libertarian shouldn't support any tax code at all. The real question is: should we support, ceteris paribus a targeted tax break. The answer is yes, opposing it would be criminal complicity.

"Libertarian" doesn't equal anarchist

 

A libertarian shouldn't support any tax code at all.

I'm not so sure that I can agree with that, depending on your precise meaning. The most obvious meaning to me, would be that in your opinion a libertarian would have to oppose having any sort of taxes, and thus presumably any sort of government. Governments have to have funds to operate. I suppose you could go without taxes, and have the government own some of the means of production, but as much as I dislike taxes, I think socialism is worse. As for the idea of doing without revenue at all, well that means no government. Even a minarchist "night watchman" state requires some revenue. I'm not a fan of wide spread anarchy. Well maybe the ideas of anarcho-capitalists might work, but I'd like to see them demonstrated succesfully on a very large scale, before I'd say that its inappropriate for a libertarian to support or accept any level of taxation.

 

The real question is: should we support, ceteris paribus a targeted tax break. The answer is yes, opposing it would be criminal complicity.

 

Criminal complicity is rather strong, and I don't really think its reasonable to apply in this situation. If you define all taxes as a criminal taking then the person proposing the targeted tax break could be just as much part of the the "criminal conspiracy", as he is still supporting some rate of tax on that particular action, and a higher rate on other actions.

If you want to hold all other things equal would you prefer a simple set of tax laws and regulations, or a very complex set? I'd prefer the simple one. Looked at as a whole I think the harm done by a complex set of taxes is obvious, and I want to avoid that harm.

 

It is true that many

It is true that many libertarians are not anarchist (I think they are mistaken though). You can very well not believe in the possibility of anarchy and be a pessimistic anarchist, or you can call for minarchy as the least evil, this doesn't mean you "support" the taxes, you just bear it.