What is the role of government? Is it to protect liberty, as our Founders believed? Perhaps it is to wield the power of law and taxation to steer society towards “doing the right thing,” like when tax breaks are granted to those who buy environmentally friendly products like electric cars, or when people are required to pay for and carry health insurance – or else?
The public’s attitude on the state’s existence has significantly evolved – or devolved, some might say – since the days of the Founding Fathers. Every new generation has a different idea on what the role of government ought to be, a trend that typically expands the size and scope of the leviathan every 25 years or so. You only need to examine the tax code to see how progressive the government has become in the last 200 years.
The anointed entrenched in the swamp – both at home and abroad – say they know better than you how your life should be lived. With this moral superiority thoroughly ingrained in the consciousness, busybodies and control freaks believe they have carte blanche to enact any policy aimed at transforming the nation into a more moral one for the notion that they know better.
This isn’t anything new. The state’s social engineering crusade, in the quest to develop a perfect society, has been the norm since the dawn of the 20th century.
From compulsory sterilization to eliminate “imbeciles” to forcing vaccinations on the public, the government has implemented a diverse array of measures to steer the population in a specific direction. It has also achieved similar success with the tax code.
Tax Credits Galore
We can agree that tax credits are a positive for the people. If any level of government is extending a tax break, then you are getting some of your money back that they already took from you. It isn’t unfair, a subsidy, or an evil loophole, as many on the left argue. It’s returning what was stolen in the first place.
The primary issue with tax credits is that the government tries to manipulate you into walking a specific path in order to get them. Post-secondary education, homeownership, or charitable giving: Politicians do their best to give you a nudge to attain something or perform an act they approve of.
It’s returning what was stolen in the first place.
The latest pet project for both Republicans and Democrats is the electric automobile. As part of the GOP tax plan, Washington is proffering an electric vehicle (EV) tax credit of up to $7,500. While this is estimated to come with a $7.5 billion price-tag through 2022, the real story is the motivation behind the credit.
It is evident that lawmakers, who are already hinting that they want to remove the 200,000 sales limit and keep the credit to beyond 2022, want you to acquire an electric car. It might be because they think gas guzzlers are destroying the planet or because Elon Musk personally lobbied them.
Whatever the case might be, the social engineers are dangling “free” money in front of you as part of their economic planning efforts. And who can resist when there’s free cash involved?
Distorting the Market
Let’s consider this scenario: John Smith is interested in purchasing a new automobile for his family. He wants a four-door sedan that fits within his budget. Smith is thinking about a Toyota or a Subaru. But, upon further research, he has learned that he can get a few thousand dollars off of his next auto purchase if he buys an electric car, like a Tesla or a Nissan Leaf. He may not have been interested in an EV before, but he certainly is now.
In 2010, then-Fox Business Network host John Stossel reported on a tax credit that allowed people to get free $6,500 electric-powered golf carts as part of the green energy initiative. Stossel revealed that it was difficult to get these golf carts because they were sold out all over the country. How many people really needed these golf carts? We can easily deduce that people wanted them because they were free.
The EV tax credit distorts the market and manipulates consumers into wanting something they may not have previously cared about.
Sometimes, too, these tax credits act as saviors for an industry or business. At the beginning of the Great Recession, the federal government went into overdrive on tax credits, particularly in the housing and auto sectors, to prolong the bubbles.
Ultimately, tax credits can misallocate resources that could have been better used for goods and services demanded by the public, not the government.
Do Incentives Matter?
One of the greatest economic lessons in modern history was former President Barack Obama’s Cash-for-Clunkers boondoggle. For Obama’s base, it was an economic miracle. For those who have common sense, it was a disaster. The $4,500 credit cost taxpayers $24,000 per extra marginal vehicle, it drastically raised the cost for used cars because supplies were reduced, and fewer used parts were available. Cash-for-Clunkers was an elementary case of the Broken Window Fallacy – no real wealth was created, just destruction.
Keynesians and big government advocates tell us that the state needs to incentivize the public through policy, otherwise they will make poor choices that harm society. They might not purchase a house or donate to a non-profit organization. While there is no evidence to suggest this would be the case, the question is: So what?
Friedrich Hayek, the eminent economist, proposed the idea of a so-called spontaneous order. It is the order that emerges as results “of human action, not human design.” In other words, things happen because of individuals’ voluntary decisions, not government decrees. If the market shows that people prefer to rent than to buy, or to invest than donate, then that is the prerogative of the public, not politicians. Despite what the nihilist civil servants contend, free people can and do make good choices on a regular basis in the absence of a schoolmarm yelling out directives.