Prometheus 6   

I'm always a bit mystified by the apparent idea on the left that money that isn't taxed is somehow "lost".

And I'm not speaking about charity here, but investments. The same money that when taxed goes to some social program, but with lower efficiency, because of administrative overhead and fraud, (and with the risk of creating perverse incentives) can be invested when not taxed with higher efficiency, creating jobs.

Okay, the idea that untaxed money is "lost" is unfamiliar to me, even as a metaphor.

But you know, there's a HUGE difference between what CAN be done and what IS done. Maybe investment CAN create jobs but if you look at the market in the USofA you'll be hard pressed to find evidence of it.

Compare fraud in social programs to the obscene salaries non-productive CEOs receive.

Much of what you call administrative overhead is employment expense. Compare that to tax breaks that cost more than the payroll of the jobs the receiving corporation creates, Or better, compare it to the taxes generated by those jobs. Talk about your perverse incentives.

Well, the point of administrative overhead (and I was only talking in the context of social programs) is that those jobs do not create wealth.

All things being equal, people want cars, consumer goods, medicines, and the like.

It's pretty plain that it's better to have people producing these goods and services that they and others want, instead of having them sitting at home unemployed.

But the same goes for the civil servant who does not deliver a popular service but who's function is to cut down on fraud: He is not producing wealth, but (in the best case) part of some complicated mini-max equation to increase the efficiency of a social program. Without fraud-detection, the efficiency could be as low as 20%, so we add civil servants until we reach a maximum efficiency of 70%, after which point adding yet another civil servant will cost more than any extra fraud prevented, and the efficiency starts dropping again.

Yes, it's nice for those civils servants to have a job, instead of also being unemployed, but however you look at it, the cost of the social program must be payed by the remaining taxpayers working in the private sector.

"Well, the point of administrative overhead (and I was only talking in the context of social programs) is that those jobs do not create wealth"

I'm also talking in terms of social programs. If corporate welfare isn't a social program, what is it? If it is a social program, it must therefore be subject to the same level and kinds of scrutiny you'd subject any other social program to. If it's not, then it's an unconstitutional confiscation and transfer of wealth and should be halted before even considering shutting down any program than benefits humans.

By the way, the Cato Intitute is of the latter opinion. See Cutting Corporate Welfare Could Fund a Bush Social Security Plan and The Cato Handbook for Congress. The latter states:

Corporate welfare programs are often purported to be pro-business. They are not. Such programs do nothing to promote a freer economy. They make it less free. Here are seven reasons why such policies are misguided and dangerous:

1. The federal government has a disappointing record of picking industrial winners and losers. The average delinquency rate for government loan programs (8 percent) is almost three times higher than that for commercial lenders (3 percent). The Small Business Administration delinquency rate reached over 20 percent in the 1980s, and the Farmers Home Administration delinquency rate has approached 50 percent.

2. Corporate welfare is a huge drain on the federal treasury. Every year $75 billion of taxpayer money is spent on programs that subsidize businesses. Meanwhile, politicians proclaim that we can't afford a tax cut. [p6: note this was directed to the 105th Congress. This means the amount has increased by now, and they got the tax cut(s) anyway]

3. Corporate welfare creates an uneven playing field. By giving selected businesses and industries special advantages, corporate subsidies put businesses and industries that are less politically well connected at a disadvantage.

4. Corporate welfare fosters an incestuous relationship between business and government. All too often, the firms and industries that contribute the most to political campaign coffers are the largest recipients of government handouts.

5. Corporate welfare programs are anti-consumer. For instance, the Commerce Department has estimated that the sugar subsidy program costs consumers several billion dollars a year in higher prices.

6. Corporate welfare is anti-capitalist. As Wall Street financier Theodore J. Forstmann has put it, corporate welfare has led to the creation in America of the ``statist businessman,'' who has been converted from a capitalist into a lobbyist.

7. Corporate welfare is unconstitutional. Corporate subsidy programs lie outside Congress's limited spending authority under the Constitution.

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And I STILL don't know where you got the idea that liberals feel any money that isn't taxed is "lost". Nor have you convinced me that corporations actually will create the jobs they could create. I don't think they would, and I have their track record of unnecessary layoffs and exporting the remaining jobs to enhance profitability as support for my speculation. What do you have to support yours?

Well, I think a difference must be made between specific targeted subsidies, which most libertarians would view as "Market distortion", and don't like, and a general reduction of taxation.

I wouldn't want to put the latter under the header "Corporate Welfare", just because you're taxed less than the maximum you've ever been taxed before, but it is applicable for the first part, because corporations that aren't subsidized will eventually have to pay higher taxes to make up for it.

There is a discrepancy here that there's usually no complaint when corporate taxes are raised all across the board, but when they are lowered, some people on the left start to argue there should not be "free gifts", but advocate only rewarding those corporations that create new jobs.

None of us have a crystal ball, but there are law of averages here, and just as we can safely predict that when corporate taxes are raised, some corporations will stop to be profitable and end up bankrupt, the reverse holds that when lowering taxes previously unprofitable ventures will become profitable again.

Exporting jobs isn't something new. If it is cheaper to produce goods abroad and ship the finished product, consumers will vote with their wallets.

The "lost" part is an impression I get from left rhetoric. In part, it's the dogmatic "raising taxes good, lowering taxes bad" attitude, where in my opinion it makes more sense to have a tax regimen following the economic cycle.

Another pet peeve with lefty rhetoric is the narrow focus on only the demand side of the economy. There's this strange denial that more efficient corporations can produce either the same goods at lower cost, or better goods at the same price, so while people may have the same income in dollar terms, they are wealthier in purchasing power.