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Progressivism

The Errors of Big Government

First. He said VAT?  The TaxProf makes a section of Irwin Stelzer's recent op-ed on the VAT available.  Stelzer shows why the VAT is no way to reduce the influence of lobbysts:

The tax sounds simple, but don't be fooled. Because both upper- and lower-income families pay the tax at an equal rate, the VAT is considered regressive; that is, it hits the poor harder than the better-off. So it is the practice in countries such as Britain to exempt food, which lower-income families spend a greater proportion of their income on. The technical term is "zero rating," meaning that exempt items are taxed at a "zero rate."

However, wait until the folks at the IRS get their hands on the regulations for the application of the new tax. They will undoubtedly turn to their more experienced British counterparts for guidance. ...

Clothing also presents a problem for the British tax man. Two problems, actually.

First, what is clothing? Well, sailors' lifejackets are clothing because they "have the form and function of clothing," but "buoyancy aids" are not. Second, since children's clothing is zero-rated, what fits into that category?

Bras up to and including size 34B; body stockings that measure no more than 27½ inches shoulder to crotch; babies' shawls but not "mother-and-baby shawls intended to wrap around both mother and child." There's more, lots more, but you get the idea.

Then there's "Nudge, Nudge, Wink, Wink," Andrew Ferguson's fine discussion of the official regulatory philosophy of the Obama administration.  The whole essay is worth reading, but I'll highlight a couple of paragraphs near the end:

You can see how useful the notion of irrational man is to a would-be regulator. It is less helpful to the rest of us, because it runs counter to every intuition a person has about himself. Nobody sees himself always as a boob, constantly misunderstanding his place in the world and the effect he has upon it. Surely the behavioral economists don't see themselves that way. Only rational people can police the irrationality of others according to the principles of an advanced scientific discipline. If the behavioralists were boobs too, their entire edifice would collapse from its own contradictions. Somebody's got to be smart enough to see how silly the rest of us are. 

Traditional economics has always been more modest. Assuming the rationality of man was a device that made the discipline possible. The alternative--irrational people behaving in irrational ways--would complicate the world beyond the possibility of understanding. But the modesty wasn't just epistemological. It was also a democratic impulse, a sign of neighborly deference. A regulator who always assumed that man was other than rational was inviting himself into a position where he could exert a control over his fellow citizens that wasn't proper for a true democrat. Self-government demands this deference. It won't work otherwise.

It seems to me that either the ways people are predictably irrational apply to all people, including regulators, or they don't. If not, then why, we should ask, does it apply to everyone else.  If it applies to regulators, on the other hand, behavioral economics might offer some insight into why regulations so often have "unintended consequences" and might suggest that we should distrust our regulators--for they have their biases to.  Now we're back to the familiar arguments of the founding.  Having studied John Adams closely for some time, I have been saying that "people are irrational in predicably ways" for years.  It is the idea at the heart of Adams' call for a government of checks and balances.  As Adams knew, but as modern scientists sometimes forget, the purpose of a system of checks and balances it to keep the people who staff the government in line--making it more likely that they serve the public interest, rather than feathering their own nests with money, power, prestige, or other goods.  The modern regulatory/ administrative state, which delegates legislative, executive, and judicial power to bureaucrats, tries to deny that such checks are necessary.  In short, behavioral economists, although they try to pretend otherwise, are simply the latest generation of Progressives.

Categories > Progressivism

Discussions - 3 Comments

"Bras up to and including size 34B . . ." I foresee and argument about size-ism brewing in the future! And trouble for the manufacturers and suppliers of breast implants!

Yup, we are doomed to suffer the VAT. There just isn't much else in the way of big revenue raisers that will even begin to make a dent in the deficits that the current administration is running up. But when the VAT fails to deliver, and we are still carving out big exemptions that favor lower-income households, there is one more tax in their bag of tricks...

It's a nasty one, which will suck the lifeblood out of our economy, but which will be very popular with progressives and with low-income voters: The "intangibles" tax. For those of you who haven't experienced this terrible little thing, it is a tax on the "intangible" property that you hold... namely, your financial assets. Perhaps 1/2 to 3/4 percent of the year-end value of all your bank accounts, stocks, bonds, mutual funds, and most any other paper asset that you own. And, of course, the first 50k of these assets would probably be exempt, so only the "wealthy" would be paying these taxes.

Gold bars sound better every day.

The real problem with the VATT is that it's a stealth tax - built into everything, and thus invisible (even better than payroll taxes). This is the reason it must be resisted (even more than Obamacare or cap and trade). Once in place, our "leadership" will become instantly addicted to this revenue stream. We'll NEVER be rid of it. Never.

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