The Tax Man

Since the 80’s, it has been an article of faith, for anyone not in the Cult of Modern Liberalism, that all taxes are bad. Robert Novak used to say that “God put Republicans on earth to cut taxes.” That generation of conservatives were convinced tax cuts would lead to spending cuts and that thinking still infests the modern mind, despite the evidence to the contrary.

Tax cuts have become a get out of jail free card for “conservatives” and Republicans. They can prattle on about moving commas around the tax code and sound butch about small government, without actually doing anything about it. Worse yet, they get to do social engineering through the tax code on the sly with gimmicks like child tax credits.

That’s why this bit from Trump got my attention. Everyone has focused on his immigration statements, but this is radical stuff on taxes. I’m not talking about the details of his tax plan, which is not terrible, but not very detailed. The radical bit is challenging the idea that some forms of income are sacred.

You never hear pols from either side talk about this because their donors would never tolerate it. Both parties love the special treatment of capital gains, because it makes their donors happy. It’s good for the financial class. The same is true of the labyrinth of loopholes and subsidies on the business side. It lets both sides cater to the donor party, while mau-mauing their voters.

Sensible people know that taxes are merely how we pay for government. They should never be a tool for social engineering, and they should never be a tool for looting the country. The former inverts the relationship between citizen and his government and the latter leads to social instability.

Both parties and their media arms work hard to keep such talk out of the public. The reason for that is it would reveal the truth of modern politics and that is both parties work in concert. It’s no longer an adversarial system. It is a game of good cop/bad cop, and the American voter is the perp. Progressives get their social engineering and Conservatives get their looting.

That’s why Trump’s line about hedge fund managers is so radical. When was the last time anyone, even a lefty, said anything like that? Once in a while Elizabeth Warren will waddle out of the wetus and say bad things about rich people, but otherwise hedge fund managers and their clients have become sacred people. Hell, we make movies glorifying the Wall Street tycoons.

What should really jump out is this line. “The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky.” Trump is essentially correct. Hedge funds have about a three year run of wild success and then reversion toward the mean kicks in and they run out of juice. Usually, their good run is based on inside knowledge.

What’s radical here is the notion that dumb luck plays a part in getting rich. This is obviously so, but a taboo topic. Mark Zuckerburglar hit the lottery. Mark Cuban hit the lottery. Say that in polite circles and people start thinking you’re a communist. But it is correct. These men hit the lottery.

Acknowledging that reality is dangerous because it turns the tables on the social engineers. If we are going to use the tax code to alter behavior, shouldn’t we tax the hell out of lottery winners, while lightly taxing people who, I don’t know, build tall buildings in big cities? The building will become a part of the nation’s stock of capital. Facebook will become another

Worse yet such talk inevitably leads to talk about how the pols decide who to tax and who to subsidize. These are not conversations we have had for a very long time and that’s intentional. When one side shouts, “tax the rich” and the other side yells “tax cuts for children!” there’s no room to talk about the daily auction of tax breaks to the connected held by the political class.

3 thoughts on “The Tax Man

  1. The problem is that the think tanks who pimp free market ideology for small business, e.g. by vigorously coming to the defense of some sandwich shop shut down by eminent domain, are the same ones pimping for big business. (The “crony capitalism” meme of late is targeted at the Ex-Im bank and such, and has little to do with taxes.)

    Trump could end up alienating people who care less about what the rich are doing and more about their freedom to operate some small biz somewhere. Even though most will fail. This hugely sacred freedom to fail idea, also represented in the freedom to get fat on oversize soda, is a fetish on the American right.

  2. Tax is great in theory but not so easy to apply in reality. One of the things I was told by a guy who works in a high level accountancy firm in the UK was that often when a large High Street business owes, say, 10 million in tax, their accountants go to the tax ‘authorities’ and say “We’ll pay you 3 million. Take it or leave it; if we go out of business because of a huge tax debt you get nothing from the workers we employ and the High Streets up and down the country will have a lot of empty stores.”

    The tax ‘authorities’ will take the deal and write the debt off.

  3. Well you can only arbitrage for so long and then the eloquent little derivative you discovered or the tiny little bit of the market you had cornered gets figured out by someone else and you lose your outrageous profits.

    I believe that the last parts of Glass-Steagall and the various and sundry interstate banking acts that mattered were repealed towards the end of our favorite grifters’ second term in office (though a lot of the damage was done under Reagan and Bush the Elder). No surprise there. What was the narrative being pushed then? “You can’t finance the greatest economy in the world with a 1930’s banking system. Europe and Japan don’t separate their mortgage asset pool from their investment asset pool. We need to change to stay competitive!” I’ve got to laugh at the bit about Europe and Japan.

    If the states and municipalities were forced to use GAAP, most cities and counties would be in Chapter 9 and the states would be in default (since their debt is sovereign).

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