Monday, April 25, 2011

Conservatives Split On Taxes

There is a philosophical split right now between two groups of conservatives. On the one side are those looking to cut the power and scope of government. This group is led by Sen. Tom Coburn (R-Ok), one of the most fiscally responsible conservatives in the Senate. The second group opposes tax increases. This group is led by Grover Norquist, founder of Americans for Tax Reform. Normally, I like and respect both men, but Norquist has gone off the deep end this time.

This issue in question is tax breaks for ethanol. And how this issue arises is that Coburn is looking for ways to cut the budget deficit. One of his proposals involves eliminating the $6 billion a year tax break given to ethanol producers. Eliminating this makes sense in a lot of ways. For one thing, it would add $6 billion a year in revenues should they continue making ethanol. Secondly, if it does stop or slow the production of ethanol, that would be good for the environment, good for food prices, and good for our energy policy as corn-based ethanol takes as much energy to produce as it creates when it’s used. Republicans (and some right-thinking Democrats) have been trying to scrap this for years.

So who could object? Grover Norquist. Why? Because he sees this as a tax increase. Norquist is arguing that this would result in a $6 billion a year tax increase on ethanol producers and therefore would break Republican pledges not to raise taxes.

This is wrong on several levels. First, Norquist is wrong to defend specialize deductions within the tax code. These deductions are most often sops to interest groups and are corrosive to democracy, just as the left’s attempt to create a progressive tax code is corrosive. All citizens should be treated equally. If they aren’t, then the government begins to lose its legitimacy.

Moreover, even if this wasn’t purely a sop, this is an attempt at social engineering by the government. The government should not be in the business of picking one form of energy over another. By doing so, it distorts the private market, which misallocates resources and hinders the natural scientific and economic development of our economy. In other words, so long as ethanol is made artificially cheap compared to other forms of energy, people will invest less in the production of better forms of energy. Also, these tax breaks have been sufficient to result in food being diverted from consumers to producers of ethanol, which has artificially increased the costs of food.

Further, if Norquist’s real goal is to decrease taxes, then allowing these carve-outs to special interests to continue will only further entrench the opposition to correcting the tax code or replacing the tax code. Even now, when we talk about flattening the code or replacing it, a chorus of voices rises up demanding that their own carve-outs continue. That’s how the government makes its citizens dependent upon it.

Also, in this instance, Norquist’s stance runs counter to the conservative interests of smaller, fairer government. Sometimes you need to accept things like the elimination of these deductions or spending cuts in favored programs to get an overall better structure for the country. If we don’t accept this, then we will never be able to cut any corporate welfare, any distorting deductions, or even raise taxes on those who don’t currently pay tax (which should be a conservative goal -- everyone needs to pay if we are to kill the idea that the government can give something for nothing).

Finally, in this instance, Norquist is making matters worse by making deceitful ad hominem attacks on Coburn: "Coburn said on national TV today that he lied his way into office and will vote to raise taxes if he damn well feels like it. . ." This is never appropriate for conservatives.

It’s time to think strategically and not lose the war through tactical intransigence.


T_Rav said...

Andrew, being from a farming region, I've heard both sides of the ethanol debate ad nauseum, and the only conclusion I can arrive at is that ethanol is counterproductive. Whatever we save in energy costs--and the idea that we save anything is debatable--gets more than canceled out by the resulting high prices for corn and everything it's used to produce (which would be almost everything).

This is a tax break that needs to go. Another benefit of getting rid of it would be that it would serve as further proof that the Republicans aren't unwilling to go after their own sacred cows where spending is concerned.

Joel Farnham said...


I agree. This is one of the few tax breaks approved by Democrats. Just given that the Democrats approve of it, should be enough. Just at a glance, it is counter-productive effort.

Norquist should be taken aside by Walter Williams and explained the manifold reasons to remove this break. Norquist should also be exposed to supply-side economics.

Tennessee Jed said...

Nice article, A.P. - I think this also underscores the importance of controlling the rhetoric in politics. The classic example is, of course, B.O. telling people not raising the rates on the top bracket is giving "tax cuts" to the wealthy. Grover falls into the trap of ideological purity. Ideally, we should want to eliminate the confusing codification of taxes and shelters, but ending a subsidy is not that, even if the practical effect is.

As we have been discussing, ours is always a more difficult road to hoe, because so much of the media will seize on any opportunity to make Republicans look bad. In other words, we have to work very hard to win the rhetorical battle that ending a subsidy is not a tax hike even though opponents will try and paint it as being nothing different than "eliminating the Bush subsidy on the rich."

Unknown said...

Andrew: "Special subsidies" and targeted tax-breaks are a major part of the federal debt problem, and when it also serves the green-weenie agenda, it's doubly-bad. If and when ethanol produces more than it consumes and doesn't interfere with the food supply, it will make its own way in the market. Norquist should know this. I agree with you about the government staying out of preferring one form of energy-production over another. And I add that given the agenda of the current administration, the preference will usually be at the expense of both the American people and the free market.

AndrewPrice said...

T_Rav, I agree. The science behind ethanol says that this is a waste of time -- it takes as much energy to make as it produces. And it is causing food prices to skyrocket since corn is in everything now. So this should go.

And getting rid of it would prove to people that Republicans are serious about fixing the country rather than just protecting voting interests.... cough couch... Iowa.

I get Norquist's point, but he's just wrong. You can't fix the tax code when you're worried about keeping each piece of it in place.

AndrewPrice said...

Joel, Very true! Walter Williams is my favorite economist/editorialist from way back! He is a guy who can make anyone understand why something is good or bad, and in this case, what Norquist wants is bad.

Like I say above, I get his point that this would technically be a tax rise, but that's not the point. This is a distorting tax cut that helps to entrench the system. These things need to go. We should be ripping out all of these carve outs, and flattening the entire code in exchange -- not protecting every individual piece.

I wonder if Norquist gets how important it is to impose taxes on the lowest income group that currently doesn't pay any? Probably not. But that's going to be vital to make sure that people stop thinking of Uncle Sam as Uncle Santa.

AndrewPrice said...

Jed, I agree on both points. First, we need to eliminate true subsidies, even if that is the technical equivalent of raising taxes. But that doesn't make not-taxing someone a subsidy. A subsidy is taxing everyone else for the same activity, BUT you.

For example, not imposing a tax on energy is not a subsidy. But imposing a tax on all forms of energy except oil/wind/ethanol is a subsidy to the one that gets excluded. We need to rip those things out of the tax code because they are economically distorting, they make the system more complex, and they create entrenched interests whose primary goal is to protect their carve outs. We need to end that so that we can create a simpler, fairer, SMALLER tax code.

I also agree that we have a long way to go to win the rhetoric on this debate because the Democrats are so dang blatant in their mischaracterizations and the media will run with it uncritically.

And in that regard, it doesn't help to have Norquist, who is seen as a "conservative voice" on taxes using the same kind of rhetoric Obama does and accusing another Republican of raising taxes, when he really isn't -- he's ending a subsidy.

This is one Norquist needs to think more deeply about what his goals really are.

AndrewPrice said...

Lawhawk, True on all points. These carve outs are bad for Democracy. They are also how a company like GE can have record profits and yet pay $0 in tax, whereas you and I make piddly each year and yet pay for GE's corporate welfare. This is the problem with the current system, it's a system designed to hand out goodies to whoever has the best lobbyists and it's paid for by people who can't afford lobbyists, i.e. the middle American taxpayer.

That's not how democracy is supposed to work, that's how a cleptocracy works. Ours is just more official looking than what is going on in Russia or South America.

And guys like Norquist need to look at the big picture. Not all tax cuts are created equal anymore than all spending is created equal. We need to get the government out of the business of bribing its citizens.

Ed said...

It's funny because if you asked me if eliminating a deduction would be a tax increase, I would say yes. But when I realize it's not a broad-based deduction, then I start to think, no it's a subsidy. Nice article.

P.S. I'm liking the new film site a lot! I look forward to seeing what you do with it!

AndrewPrice said...

Thanks Ed! We'll see how it goes. Right now I'm thinking it will only update every couple days instead of every day, but there should be some good stuff. Tell your friends once we get the official opening. :-)

On this article, it is an interesting issue because I can see both points. BUT, Norquist is being so focused on his single issue that he's missing the bigger picture, which is that taxes would go down across the board in the long run if we can reform the tax code.... and we can't do that if we if can't pull these distortions out of it.

DUQ said...

Ethanol really pisses me off. It's stupid environmentalism run amok. It sounds great except that the science shows it doesn't make any sense, and yet we're stuck paying billions a year for this crap and it makes our food really expensive. Talk about the perfect example of what's wrong with the government!

AndrewPrice said...

Ed, I agree, ethanol is what happens when fake science meets lobbying power, and we all end up paying for it over and over and over.

Tehachapi Tom said...

Ethanol is concentrated food stuff.
We should provide it to the bo voters for free starting 6 week prior to any election. All recipients of welfare and those wanting bo to buy their gas and make their mortgage payments would be entitled to as much human consumption grade ethanol as they could consume.

Ed said...

Andrew, Don't worry, I'll tell everyone whenever you give the word! :D

Slow day on the net today. The Bigs are kind of slow so are the other places I visit. I guess people are working now that Easter is over.

AndrewPrice said...

Tom, We might as well, that makes as much sense as burning it in cars.

AndrewPrice said...

Ed, I'll let you know when we're officially open!

AndrewPrice said...

By the way, did anyone see that Haley Barbour dropped out of the race for President? What a surprise. He had no chance.

CrispyRice said...

Haley who?? ;)

Nice article, Andrew!

AndrewPrice said...

Thanks Crispy! Haley somebody or other who once thought a lobbyist should win the Republican nomination for President.

StanH said...

Though sometimes he has a great point, Grover Norquist is an inside the beltway stooge. His positions are conducive to the cocktail circuit in Georgetown. Excuse my crudeness, but…you cannot polish a turd. The only way to fix the tax system, is to scrap it! If you leave the mechanism in place (the United States tax code, and the 16th Amendment), it will simply grow back. There is no way in Hell that Washington politicians, K-Street can resist toying with the tax code to show favoritism to a special constituency (GE). We are in dire straits, look to the IMF announcing the end of USA supremacy by 2016. If we are to save our Republic, we must radically change the way we operate - - maybe the only way is through collapse? Coburn and Norquist are simply the continuation of the Kabuki Theater that is Washington, remember Coburn is a member of the “Gang of Six” working with Dick Durbin to find middle ground…I wonder how that’s going to work out?

AndrewPrice said...

Stan, I don't think the support is there for ending the income tax, and I think that's because no enough people pay it. We need to flatten the structure, eliminate most or all deductions, and make it apply to 80-90% of the public. Only then will people be willing to eliminate the system.

Watson said...

Boehner is now talking about giving up tax breaks for the oil and gas industry. I guess that's the same thing?

AndrewPrice said...

Watson, I think it is. How can we reform the tax code if we decide that we're going to use it to hand out goodies to industries we like? We should take all of these out -- and not just industry by industry, but all at once.

Watson said...

You're right, but it just sounds like a bad idea to start hitting businesses with new taxes. I guess as part of an across the board tax cut, that would be acceptable.

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