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Why eliminate tax breaks?

February 15, 2010

The Colorado Legislature has been busy passing laws eliminating tax breaks–or “loopholes” as politicians like to call them–along party line votes.  Blogger Ben DeGrow has been following this closely and reports on the latest activity of the Dirty Dozen.  I’d like to go against the grain a bit and explore why eliminating these tax breaks might be a good idea.

First, a little background.  Legislators proposed taxes to raise money to fund things they want to do–and hopefully these are things that are both constitutional and in the best interests of the citizenry.  In Colorado we have the extra benefit of having TABOR which actually requires a citizen vote on new taxes.  So in theory, there are no taxes unless the citizens agree to be taxed.  That’s “taxation with representation” and it is a key founding principle of this country.

In practice things go awry.  Legislators propose taxes to fund things people don’t want and they try to tax people more than the people agree to.  One way to get these taxes passed in spite of opposition is simply to exempt certain groups from taxation.  The squeaky wheel gets the exemption.  Enough exemptions and pretty soon there’s enough support to pass the tax.  Who are those squeaky wheels?  Lobbyists, of course.  If you’ve sponsored the tax break, it’s an incentive to a deserving (or preferably a disadvantaged) group.  If you oppose it, it’s a loophole given to special interests.

It’s all rubbish of course.  It leads to the absurdity of the Democrats in the state legislature calling the citizens who testified against the Dirty Dozen “special interests.”  At the same time, Republicans are saying that eliminating, for example, the tax break for soda and candy discriminates against the poor.  Equally nonsense.

Frederic Bastiat wrote over a century ago that the party in power uses its power to reward its friends and punish its enemies.  Bipartisan support for a tax bill really means that enough constituencies on both sides are given enough exemptions to gain the support of a majority of legislators.  Who is left holding the bag?  Usually it’s the ordinary hard-working, tax-paying citizen who does not hire lobbyists to look out for their interests in the legislature.  We are not represented.

But wait: isn’t that what the legislators should be doing?  Why do we the people need lobbyists?  Because the lobbyists fund the politician’s reelection campaigns as do political parties. Elected officials today seem to feel more loyalty to those groups than to the people who vote for them.

Here’s my proposal: Go ahead Democrats, close every exemption.  Make every citizen, business, and union feel the pain of taxation equally. You’re all about equality of outcome, right?

Then let’s talk about how you’re spending the money.

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