Loopholes: Another Word for Freedom

Jeffrey Tucker
Oct. 18, 2012

Let's say that a thief demands $100 and lets you keep $10 because he likes your suit. He calls that a deduction. The next day, he demands the whole $110. He says that he is not stealing more. He is only eliminating deductions and closing loopholes. That's the GOP's tax plan in a nutshell.

They say that it is not about raising your taxes. That's what Democrats do, and Republicans don't do that sort of thing. Instead, Republicans favor the "flat tax" that is "revenue neutral." They will "pay for the tax cuts" by capping deductions on high income earners. Or perhaps they will just remove the mortgage interest deduction or other "loopholes" that allow you to keep more of your money.

How stupid do they think we are? Sadly, they might be right. Most people's eyes glaze over when politicians start talking tax reform. They understand that "raising taxes" is generally bad, but they do not understand that "eliminating deductions" amounts to the same thing. Either way, you pay. The only real difference is the public relations pitch.

Actually, the GOP has been raising taxes for decades, just less openly so. Reagan's tax increase of 1983, as recommended by the Greenspan Commission, was disguised as a premium increase to save Social Security, but it was actually a gigantic increase in the payroll tax that was later applied to general revenue. It put off the endgame for Social Security for a while, but for the average taxpayer, it was nothing but a tax increase.

This tax has extracted some $2.5 trillion since it was first enacted. Somehow, Reagan maintained his reputation as a tax cutter, and still does to this day. It has something to do with the need for partisan illusions. Premiums, they tell us, are not taxes. The same thing is happening with the Romney ticket. It is out there every day talking about raising taxes, just with a different name, yet the Democrats blast back with the claim that the Republicans are busting the budget with proposed tax cuts.

Both parties are pushing for some kind of tax reform, but the key rule is "revenue neutrality." All these plans are doped out with the presumption that the planners can perfectly anticipate future revenue, but the regime change has no effect whatsoever on people's behavior in the marketplace.

They presume that a cut here will decrease revenue by a certain amount and that an increase there will increase revenue by a certain amount. The truth is that you can't know. No one expected or anticipated that government revenue would collapse after 2008, for example, and that was with no tax overhaul at all. The political parties can cite all the "studies" they want, but no one can perfectly anticipate the effects of changes in the tax law.

In effect, the rule of "revenue neutrality" means that no one is talking about serious change in taxes at all beyond increasing them in more or less serious ways. It's the same with spending cuts: Politicians can talk about them, but they will not deliver them so long as the Federal Reserve stands in the background ready to print any amount money to cover any amount of debt that the Congress runs up.

If anything, the GOP position is the more dishonest of the two parties because the GOP is forever claiming that the Democrats want to raise taxes whereas the GOP does not. The truth is that both parties have their green eyes fixed on your bank account with the intent to grab more one way or another. The choice voters face really comes down to how they want their tax increases packaged: as a hurt-the-rich scheme or as a flat-tax scheme.

Every tax reform in my lifetime has actually been a push for higher taxes in one form or another. And there are still other ways to raise taxes besides raising taxes, reducing deductions, capping deductions, and closing loopholes. You can raise tariffs, increase user fees, enact quotas, inflate the money supply, or outright confiscate people's property through police state tactics. All these methods suck resources from the private economy into the government.

The goal of every tax reform is to do this in the sneakiest way possible.

The media are no help in clarifying language. When a politician proposes a cut in taxes, the reporter imagines that he or she is a clever and hard-hitting journalist by shooting back: "How are you go to pay for that?" Nonsense. If the thief decides not to take your wallet, he shouldn't be asked how he is going to pay for his failure to steal.

Of course, all of this is beside the point, really. The core problem is spending. If the government didn't spend money, it wouldn't need to tax anyone. The only real way to lower taxes over the long run is to cut spending, but again, this is not going to happen. Even those who talk about spending cuts are really talking about cutting the rate of increase in spending over five or 10 years in budget projections that have never panned out even one time in the history of the universe.

Knowing all of this makes you doubt the whole point of these ridiculous political debates. Yes, that's the idea. It is worse than pure entertainment because the whole show masks the greatest racket in the world today. A useless elite is living off your money and telling you that you are better off as a result. And when you question why, they throw accounting trickery and fancy language in your face that all amounts to the same thing: The beatings will continue so long as you don't run away.

And running away is precisely what is happening. The lower on the list of economically free countries the U.S slips, the more people are looking to the underground economy or to emigration to protect their own freedom. What this suggests is that the scam isn't working as well as it used to. It's long past time that people stop believing these thieves, much less trusting their motives.
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Jeffrey Tucker, publisher and executive editor of Laissez-Faire Books, is author of Bourbon for Breakfast: Living Outside the Statist Quo and It's a Jetsons World. You can write him directly here.