Loopholery

The more rarefied topics in the theory of justice in governance seldom get as much attention as they deserve. This is particularly the case when the subject is asymmetry in taxation.

That doesn't mean no one is exercised about them, of course:

Now, for the record, so long as [tax] loopholes exist, I say "Go for it!" No laws are being broken by having a skilled accountant or attorney who can take the best advantage of the opportunity but, really.... doesn't this make you squirm just a little?

Sure, the money they don't spend on taxes will be reinvested in the company or in the community but, don't most of you agree that they should pay something?

Please read the story at the embedded link. If that sort of thing has never flicked you on the raw, Gentle Reader, you are truly among the rarest of men. I, who have long argued that unless taxation is wholly voluntary and unenforced, it merely constitutes legalized robbery, find that I'm rather put out by it myself.

But it does give us a nice window onto a key mechanism for the acquisition and retention of power.

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"Government's a dubious glory...You pay for your power and wealth by balancing on the sharp edge of the blade. That great amorphous thing out there -- the people -- has turned and swallowed many governments. They can do it in the flash of an angry uprising. The way you prevent that is by giving good government, not perfect government -- but good. Otherwise, sooner or later, your turn comes." [Frank Herbert, The Godmakers]

Frank Herbert was no great fan of individual freedom. Indeed, he was rather starry-eyed about government and the supposed good it could do. The above quote from one of his less well known novels encapsulates the optimism at the heart of his convictions...an optimism that has proved misguided far more often than not.

The abstract noun government is itself misleading, as is the blunter quasi-equivalent State. We are encouraged to speak and think in such terms because such "forests" can obscure the reality of the far more important "trees:" the ruling elite whose members, at any given moment, wield the powers of the State.

Granted, some "governmental" policies are made by legislatures rather than individuals. With the exception of the executive order, which has binding force upon executive branch employees only, the Czar's ukase is absent from statecraft in these United States. But a legislature is made up of individuals. We know no other way to do it.

A quick march through the essential truths of the thing is in order:

1. Premise: The overwhelming majority of persons who seek public office want power above all other things.
2. Observation: In the quest for political power, the edge goes to the most ruthless and single-minded.
3. Observation: Every cause has more than one effect, and every effect has more than one cause.
4. Observation: Tax policy, unless absolutely uniform over all the individuals subject to it, creates a condition of differential privilege.
   1. Implication: All other things being equal, those who possess greater privileges under a particular policy will be more inclined to favor it...and to support the aspirations of those who champion it.
   2. Observation: Supporters with a lot of cash are more effective than the other sort.
   3. Implication: Politicians who garner the favor of wealthy supporters are more likely to gain and retain power than others.
5. Observation: In the history of non-hereditary governments, power has always concentrated in the hands of the wealthiest and those whom they favor.
6. Gratuitous (And Possibly Unnecessary) Statement Of Opinion: This is no accident.

Taxation, though overtly a matter of funding the operations of the State, will always have a covert purpose as well: the reinforcement of the positions of the regime's supporters. Tax policy, no matter what justifications are offered for it, will confer privileges upon those who support the promulgators of the policy.

If there are any exceptions to this pattern, I am unaware of them.

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When politicians speak of "loopholes" in tax law, they're playing a particularly insidious game with us. What's so frequently called a "loophole," as if it were a seamstress's error in a garment, is almost always a deliberate provision of the law, written into it to favor some group or commercial sector over others. Indeed, it sometimes happens that the provision was openly advanced as "in the national interest," as was the case with the mortgage-interest deduction from the personal income tax. Encouraging the construction of housing makes the nation stronger and more secure, the argument begins; but housing won't be built unless consumers are ready, willing, and able to purchase it; therefore, tax policy should privilege this particular expenditure to keep the housing industry healthy.

(A similar argument was once made for the deductibility of interest paid on private borrowing for any purpose, but you have to be fairly old to remember that one. It succeeded, too; that provision was only struck from the income tax law in the mid-1980s.)

The late Jim Baen once observed that using tax policy for social engineering is among the most seductive of all traps in public policy. There's no logical end to it. After all, once you've persuaded yourself that "the good of the nation" justifies elevating one category of persons or activities over others -- and that you grasp "the good of the nation" more than adequately to make such decisions, of course! -- what aspect of life or commerce can claim immunity from your touch?

Thus, what we naively call "loopholes" in tax law proliferate and mutate, often at a geometric rate, until a cataclysm brings the edifice crashing to the earth.

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The shell game of government is unceasing. The power-mongers in office at any time might appear to be divided about what to do and how to do it, but on one thing they are agreed: they deserve their positions, and as much power as they can gather to themselves. To the extent that this puts them in competition with one another, a vigilant citizenry can take measures to curb their excesses. However, the absence of such vigilance -- which can be effectively neutralized by a number of tactics, such as passing unpublished thousand-page bills in the wee hours of the morning -- gives the ruling cadre an enormous edge over those of us who merely want to be left alone.

Money is not power, strictly speaking. Yet money and power have always concentrated in hands friendly to one another. Tax policy has always supported that concentration. It probably always will.

The interests of a ruling elite can never be identical to those of the ruled; the argument approaches tautology, despite Frank Herbert's dreams of "good government" as the sole effective shield against popular revolt. Our ruling class, and its supporters nominally outside the halls of power, are not exceptions. Regardless of what politicians might say as they argue for the "closing of loopholes," they will simultaneously craft new, cleverly concealed or justified "loopholes" to protect the interests of those who have helped them ascend to the levers of the State.

In other words: Don't bet against class incentives. It's a good way to go home in a barrel.