Friday, May 25, 2007

The Tax Foundation: Finding Better Ways to Steal Your Wealth

Think Tanks are useful institutions. They often provide valuable research on issues that often get overlooked by formal academic institutions, who, more often, are focused on meeting political-driven priorities, and those pet issues of yet-to-experience-the-real-world graduate students pursuing their advanced degrees. I like think tanks because they can provide some empirical data, statistics, and other analysis on various issues that support the case for free market based solutions. Too often, making a moral case for liberty isn't good enough to Statists, who want to see "science" affirm what reason, logic, compassion, and common sense should make abundantly clear.

The problem, however, with placing too much emphasis on empirical approaches is that too often first principles get ignored. As I once heard an acquaintance say, if you torture the data long enough, it will confess to anything. Murray Rothbard had strong criticisms of the methodology of the "Chicago School", for overly relying on this approach. In an extreme example, if empirical data were to show that murder and rape led to increased efficiency in an economy, then by all means, that would make the case for supporting such things.

The Tax Foundation is a decent think tank which devotes itself to researching the impacts of tax policy. I like to keep an eye on the things they are talking about, for the reasons I mentioned above. But I was startled when I read this recent blurb about some new research on the Alternative Minimum Tax (AMT).
New Study on AMT Finds More Fault with Regular Tax
by Patrick Fleenor

Congress should not repeal or radically change the Alternative Minimum Tax (AMT) but instead reform the regular tax code so that it allows less income to go untaxed, according to a new Tax Foundation study, titled “Fixing the Alternative Minimum Tax.”

"In the year just past, more than 60 percent of personal income went untaxed by the regular tax code," said Patrick Fleenor, Tax Foundation chief economist and author of the new study. "By closing some of those gaping holes, we can take pressure off the AMT."

Key Findings:
The overriding flaw of our income tax system is the vast flow of funds that escapes taxation through the use of various loopholes in the tax code. The AMT corrects a small portion of this problem, albeit imperfectly.

The AMT is often redundant and complex, but the basic idea behind it—taxing a broader base at lower rates—is a sound one that should serve as a guide to tax policy.

Unfortunately most of the AMT "fixes" currently under consideration would move us in the wrong direction—shrinking the tax base and taxing what is left at even higher rates.

The key to fixing the AMT lies in the regular tax code. By curtailing the myriad exclusions, deductions, exemptions, and credits in the code we could expand the tax base. This would allow us to raise the same revenue with lower tax rates, reduce the number of filers affected by the AMT, improve the overall quality of the tax system, boost the nation's economic well-being, and improve tax equity.

The problem, according to the Tax Foundation, isn't that the State has its greedy mitts in too many cookies jars, but rather, not enough. Tax loopholes, exemptions, deductions, credits, and other devices which allow private individuals to protect and retain their property against theft by politicians are not good things, but actually, an enemy of sound tax policy. The priority, is to make sure the State is getting fed enough, and private activity towards wealth building comes second. The principle that taxation is theft, and fundamentally immoral, is lost upon the study's authors.

One would think, if it's acknowledged (and rightfully so) that the AMT is a burdensome, counter-productive tax, then the simplest solution would be to abolish it altogether. But here's where blind empiricism can go awry, and propose solutions that completely ignore basic principles. If an economic system based on private property is the only morally, and yes, empirically, tenable one, then it stands to reason that any research that concludes exposing more private wealth to the threat of confiscation is optimal, may be just a bit flawed.

I'm surprised by this conclusion, and I wonder how many supporters of the Tax Foundation will give pause, when considering them spending brain power in the pursuit of expanding taxation, rather than limiting it.


Anonymous Anonymous said...

It would seem to me that the libertarian point is to minimize taxation--not choose between styles of taxation. Is a 90%marginal rate (as existed from the mid-thirties through the early sixties) so terrible if the loopholes are huge and plentiful? Or a 4% tax that excludes no one and exempts nothing? either might well be preferable to what currently exists.

5:30 AM  
Blogger Libertarian Jason said...

The "libertarian point" is that taxation should be eliminated whenever and wherever possible, because taxation is theft, and teft is wrong. "Minimizing" it, streamlining, or making it "more efficient", while certainly commendable, is fundamentally beside the point.

10:56 AM  

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