Taxes are routinely awful, and annually unearth dread in all of us as we cower before Congress’s outsourced tax collector (the IRS). We do so while trying to grasp the meaning of a tax code that attains its lucrative vitality for congressmen and senators via its total incomprehensibility to us.
Despite that, taxes paid are the least damaging part of the whole tax process. If only it were just taxes. Please read on.
Government spending is much more economically crushing than taxation exactly because it’s the politicized central planning of resources. It’s not just that West Virginia remains logically warped and backwards after decades of enormous federal inflows to the Mountain State, it’s that California is much less than it otherwise would be owing to Sacramento’s access to the wealth of the world’s richest.
Contemplate what it all means. Every dollar of state and federal spending on central plans grows the constituency and constituencies invested in the perpetuation and growth of the central planning. Is it any wonder that West Virginia is still so poor?
Please think about the above as economists, pundits and politicians wring their hands endlessly about deficits and debt, and ways to “plug” the holes with more revenue. As is noted routinely in my upcoming book, The Deficit Delusion, the alarmists are dangerously distracted.
The much bigger challenge is the first dollar spent via taxation, and the extraordinary difficulty of reversing the expenditure. Instead, small centrally planned allocations of precious resources grow into ever larger ones.
Here is the true burden for the “grandchildren.” It’s that they inherit a behemoth that needs to be continuously fed precisely because the enormous constituencies close to the program need to be fed.
Which is why the worst part of taxation is what happens after the taxation. Once the proverbial shovel is in the ground, the central plans associated with the shovel are forever.
That’s why the goal shouldn’t be lower federal tax rates (5, 10 and 30% of Elon Musk’s earnings is nothing like 5, 10, and 30% of yours), but efforts to ensure that the federal government has strictly limited access to the wealth of the richest. Their taxation isn’t just damaging because it saps the investment behind all growth, the excessive taxation of the rich makes it possible for our federal government to unsheathe endless amounts of shovels. Get it?
Despite this, historically free market types like Scott Hodge (Arnold Foundation) acquiesce to the economy-sapping truth that the tax code is progressive, and that the state and local tax deduction is unwise precisely because it lowers the federal burden on the rich. Translated, Hodge is acquiescing to the worst part of taxation, that it rapidly funds shovels poised to grow government exponentially. Which brings us back to a discussion about SALT that won’t die, and that shouldn't.
There’s a near monolithic view on the American right that the state and local tax deduction (SALT) “effectively rewards high-spending states and punishes prudence.” Such a view imagines that with taxation, the bad part is in the taxing only for the spending by politicians to be benign.
No, government spending is the worst part precisely because it’s central planning of resources that explicitly foretells much more central planning ahead. This is why we need much more than SALT deductions (ideally credits), and instead a real discussion about the excessive taxation of the rich. It’s a huge tax paid for by us all precisely due to the central planning it funds in the present and future.
