If It Ain't Broke-Give It a (Tax) Break(the frequent absence of principle)

[papau]

http://www.latimes.com/news/opinion/la-oe-chait24sep24.story
JONATHAN CHAIT
If It Ain't Broke, Give It a (Tax) Break
Sleazy legislation demonstrates Bush's lack of ideological principles.
JONATHAN CHAIT

September 24, 2004

One of the things we Bush haters like to say to each other, over lattes with NPR in the background, is that the current president makes us nostalgic for George H.W. Bush, Ronald Reagan and Richard Nixon. Non-Bush haters have trouble understanding this point. Is this GOP president really that much more conservative than other GOP presidents? Well, yes, he is. But the main problem is less his conservative principles than the frequent absence of any ideological principles whatsoever.

One telling episode began last year, when, because of a World Trade Organization ruling, Congress had to eliminate a $5-billion-a-year export subsidy. The obvious thing to do was pocket the $5 billion and make a dent in our quite large budget deficit. Of course, the GOP-controlled Congress decided instead that every dollar saved would be devoted to tax cuts. And because the newfound money would come from corporate America, it would be returned to corporate America.

Now, if it did make sense to provide a tax cut to corporate America, the logical course of action would be to make it a broad-based tax cut. So of course Congress avoided that. Instead, it decided to offer narrow tax breaks to manufacturers, on the grounds that manufacturing has faced hard times. Thus Congress violated a maxim of conservative and liberal economists alike, which holds that the tax code should not favor one kind of income over another.

Why? First, markets are more efficient than lawmakers at deciding whether resources should be allocated to building cars or to writing software. The fact that manufacturing is in trouble sounds like a compelling exception, until you realize that politicians can (and do) make an equally compelling case to favor industries that are doing well. A few years ago, Congress exempted online purchases from sales tax — on the grounds that booming Internet commerce represented the wave of the future. Neither kind of favoritism makes economic sense.

Second, when the government favors one activity over another, it invariably creates a huge incentive to monkey with the definition of that activity. If manufacturing gets a lower tax rate, then the goal is to be legally defined as a manufacturer. That's exactly what happened. Lobbyists for agriculture, construction, recording and many other industries successfully began lobbying Congress to be reclassified as manufacturers. <snip>