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Tax break panel's attitude putting it on course to fail
If Louisiana legislators remain invested in the same ideology that has spawned the hundreds of tax exceptions, not a single constructive thing will emerge from the effort.
Last week, the Revenue Study Commission reviewed a number of these in an effort to parse out whether policy as it exists in this regard optimally forgoes revenues because of these exceptions. Part of the exercise allowed arguments, particularly from current beneficiaries, stating cases as to why their breaks, some of which on the surface seem very questionable, should continue.
And so we got from them arguments like Lt. Gov. Jay Dardenne’s, who oversees arts policy as part of his portfolio, defending the sales tax exemption on art sales in the state’s designated 63 arts districts, who claimed it was a economic redevelopment tool that cost only $500,000 over the past two years but the districts themselves had economic activity of over $1 billion. Bullion dealers say introduction of a sales tax exemption on sales above $1,000 caused their business to increase many times. A representative with the New Orelans Jazz and Heritage festival said a new exemption applies to sales tax on admission and vendor sales helps “maintain a ticket price that is reasonable.”
Supporters misinform and mislead in three ways with statements such as these. First, they phrase their objections, with little to no evidence supporting such contention, in a way implying that the break produces the “economic activity.” In real life, that is if not entirely, almost wholly untrue: some to perhaps a lot of this activity would occur without the break. The law of supply and demand exists independently of these activities. Art and bullion still would sell, just a little less of it as the tax would price a few marginal consumers out of the market. That alleged $1 billion or more in activity would decrease a little. However, the markets would not collapse without the subsidy.
Second, they assume that the money forgone through the break, by being left in the pockets of the subsidized activity, has gone to its best and highest use in terms of state goals, which in the case of tax policy is related to economic development. Again, this is unlikely in almost every case. For example, let’s review the situation regarding crossings of the Red River between Shreveport and Bossier City. There are five bridges currently, four with four-lanes, but the southernmost, the Jimmie Davis Bridge connecting two of the fastest growing areas, has only two lanes. Estimates are it would cost in the area of $100 million to add another span. Would it not mean a lot more economic development to a whole lot more people to spend $100 million on this purpose than it would be to hand it out to, among others, a small coterie of art dealers, bullion dealers, and festival attendees?
Third, existing policy myopically picks and chooses the winners and losers of breaks without any real attempt to connect the results to a philosophical understanding of the purposes of state policy. Ideally, government should fund activities only very necessary to the functioning of society, or in other words those that maximize the chances of individuals through their own means to pursue their chosen ends that minimally interfere with others choosing to pursue their potentially different ends – that is, funding common goods the market provides only with difficulty if at all.
If viewing the exception issue using these examples in a scenario of direct redistribution, obviously a doubling of bridge capacity is going to do much more for economic development if forgone revenues get spent that way, and is something that individuals cannot do themselves. Contrast this to the alternative of leaving in the pockets of dealers, those who choose to attend festivals, and similar narrowly targeted areas that affect commerce to a much lower degree, and the much smaller impact on commerce that therefore would occur. Or, using a scenario that does not redirect funds but instead spreads the break over far more individuals by trading breaks for lower overall rates, the greatly expanded pool of individuals involved provide much more information to markets in allocating resources optimally than when kept among many fewer and thereby increases chances of optimal allocation for economic development purposes.
To put it more plainly, how much subsidization of art should government engage in, when private markets and philanthropy exist already in that area of activity the support of which does little to allow all individuals to pursue collective means to assist them in pursuing individual ends, as opposed to building a bridge, which will not be done besides by government and would cast a far wider net over and have a far greater impact on the ability to pursue individual ends? By definition, government is a money-losing enterprise that operates from permitted confiscation of wealth, so the question becomes what money-losing activities does society as a whole value enough to permit subsidization of them – understanding that in a world of finite resources choices must be made that, absent a larger moral consideration, should promote the greatest value to the greatest number?
This is the kind of debate that needs to occur – and, from the published comments put forth by legislators involved, is not. That many of them seemed to have the attitude of state Sen. Jack Donahue who volunteered that in performing this review that “We don’t want to make you less competitive,” indicates acceptance of some perverse notion that government ought to be in the job of picking who should be made more or less competitive. Rather than make this statement, the question needs to be asked “Why are we making you more competitive as opposed to alternative uses of these funds as they relate to the interests of the entire state?”
Posted by Jeff Sadow at 09:45