Why Grover Norquist Is Wrong About Taxes
What most conservatives have a hard time accepting is the fact that, once taxes exist, a decision not to tax x as everything else is taxed has the same effect as taxing x and sending a federal check to x (or the owners of x) equal to the sum of the tax bill paid.
A great example of this sort of intellectual confusion in action is the recent sturm und drang surrounding the tax credit provided to oil refineries for using ethanol. The tax credit saves refineries from having to pay $5.7 billion in federal taxes in 2011, but the exact same thing could be accomplished by eliminating the deduction and cutting a $5.7 billion check from the federal treasury to reward refineries for using ethanol. To complain about federal handouts – as ATR tends to do – while supporting tax breaks for the ethanol production – a position initially taken by ATR this spring – is to make a fetish of form over function.
A great point made in simple language. Listen carefully to the sound of nobody in the GOP acknowledging this simple truth.
Regulation is another, less transparent, way to alter economic outcomes. Again, take ethanol for example. The tax credit given to refineries for using ethanol has become increasingly unpopular, so Congress is considering repeal. But Congress has also enacted a regulation mandating the use of ethanol in gasoline (12.6 million gallons in 2011). Repeal of the tax credit would cease the flow of dollars to oil refineries, but the bulk of the economic distortions caused by government support for ethanol would remain.
And following is the icing on the cake of this destruction of the silly ATR “no taxes” stance:
One might counter that, as imperfect as it is, a political focus on tax revenue at least has the virtue of allowing straightforward, easy monitoring of the political class. At worst, holding the line on taxes is a necessary but insufficient step towards less government.
But that’s not so. NYU law professor Daniel Shaviro persuasively demonstrated in the pages of Cato’s Regulation magazine some years ago how the Bush tax cuts in 2001-2003 actually increased, not decreased the size of government. That’s because they had no impact on government spending, which rocketed under the Bush administration.
The tax cuts were simply a decision to buy government services with a credit card rather than with cold, hard, cash.