Cronies, Credits, and Crimes
Most of the handwringing over the recent “fiscal cliff” legislation has been over massive tax credits for favored interests amidst huge tax increases for everybody else. See especially this Wall Street Journal editorial and this column by Tim Carney. It is important to remember, however, that tax credits and loopholes are good things. As Mises said, capitalism breathes through loopholes, and as Rothbard said, every step toward making the tax code one giant loophole is progress.
Payments made by crony capitalists for any crimes they’ve committed should be paid directly to their victims, and not to the state via increased taxation. Tax credits, even those given to the worst crony capitalist, are not injustices. However, they are signs of hypocrisy, and make the true injustices committed by those cronies all the more appalling.
The true injustices involve supporting state coercion of others and state-granted coercive privileges and subsidies for themselves.
The largest recipients of the “fiscal cliff” tax credits are also the biggest supporters of both Democratic and Republican Federal lawmakers: General Electric, Citigroup, Goldman Sachs, etc. (And this support pours forth both through campaign contributions, as well as cushy jobs and contracts once the lawmakers are on the Wall Street/K Street side of the “revolving door”.
This power elite supports both the left and right wings of the bird-of-prey that is the Federal state, and direct the state’s talons against their non-crony competitors and the productive public in general, through taxation, inflation, and regulation. By squashing competitors, this ensures outsized profits, and by mulcting non-cronies to the hilt, it ensures funding for the cronies’ subsidies (like GE’s billions of dollars in Federal “green” stimulus money) and bailouts (like the ongoing Federal Reserve QE bailouts of the elite banks).
And, it is these injustices, and not tax credits, that are abrogations of consumer sovereignty, and thus, sources of inefficiency in the market. Tax credits, by allowing producers to keep more of the earnings that consumers award them, make producers more eager to satisfy consumer wants. On the other hand, the taxation and regulation of non-cronies to support the true corporate welfare (subsidies, bailouts, and state-supported “profits”) of cronies makes the market less competitive, and less responsive to consumer wants. It makes success more dependent on political pull, and less dependent on the efficient provision of goods and services.