The more I hear of discriminatory tax schemes (such as what Scott Walkerpromoted in Wisconsin) the less I like them. While I do not favor repealing tax exemptions unless offset by general tax cuts, neither to I support implementing new discriminatory tax measures. Instead, advocates of economic liberty should advocate lower taxes for everybody, imposed in an equitable way.
I see four main problems with discriminatory taxes.
1. They’re not fair. Taxing two people in comparable situations different rates is just plain wrong. Moreover, they seem to blatantly violate the Fourteenth Amendment’s guarantee of an “equal protection of the laws.”
2. They involve politicians in social engineering. Politicians impose relatively harsher tax penalties on people and activities they don’t like, in order to impose less-harsh penalties on those they favor. But it’s simply not the proper job of politicians to pick winners and losers in the marketplace, or to play favorites.
3. Discriminatory taxes encourage individuals and business to squander resources vying for special tax privileges. This time and energy should be spent on productive work, not sucking up to politicians.
4. Discriminatory taxes skew people’s incentives. They direct more effort into tax-favored activities, and less effort into tax-punished activities. This necessarily shifts economic activity away from serving the highest needs and wants of customers.
In light of this general criticism, consider a new tax discrimination scheme proposed by Colorado Representative Cory Gardner, as described in a March 17 release:
Rep. Cory Gardner (R-CO) introduced a bill today that will help entrepreneurs and small business owners by allowing them to open tax deductable savings accounts under the condition that the money is used to start or grow a small business.
“Many small businesses are started in a garage with a dream and a credit card, and it’s time to lend these people a hand.” Gardner said. “If we’re serious about economic recovery and job creation then let’s look to ways that we can help small businesses, which create 2 out of every 3 new jobs.”
Details of Rep. Gardner’s proposal:
* Businesses with 500 or fewer employees will be eligible to open a savings account.
* Contributions to the account would be capped at $10,000 per year and the total value of these accounts at any one time would be capped at $150,000.
* As long as the money is used within five years of the first distribution, account holders do not have to worry about fees or penalties.
* Account holders could use the funds for the costs of business creation or expansion, such as the purchase of equipment or facilities, marketing, training, incorporation or accounting costs.
Consider the problems with this proposal:
* It favors new jobs over old jobs. Thus, it will promote ending stable, existing jobs in favor of “creating” new, more-speculative work.
* Who gets to decide which expenditures count as “growing a small business?” In actuality, every business expense is made with that outcome in mind. But, under the proposal, we’ll have some team of bureaucrats to decide what counts and what does not count as “business development” under the program. And so businesses will waste resources playing this political game.
* The proposal favors small businesses over large ones. But, again, it’s not the proper role of politicians to pick winners and losers or play favorites. It’s the proper job of politicians to protect property rights, including rights of contract. Let people in a voluntary market decide the proper sizes of business ventures.
If Corry wants to cut taxes for businesses, something I strongly favor, then he should just proclaim that openly and offer an across-the-board tax cut.