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Tax Day 2011

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It’s Tax Day. Both ends of my radio dial can talk about little else. But I didn’t hear them explain why it was moved back from April 15th. Tax Day was postponed because a District of Columbia holiday (Emancipation Day) fell on the Fifteenth this year.

It’s interesting to me that today is also Passover, but the Jews do not get any official holidays. Even after decades of multiculturalism and diversity worship. Anyhoo…

If I could make only one point about taxes, it would be this:

Every nickel a government spends is a tax.

The spending may be a nickel that was taxed away last year and deducted from the government treasury. Or it may be a nickel borrowed from the private economy which will need to be taxed away at some time in the future to settle the debt.

There are many interesting arguments to be had about tax rates and tax policies. And that’s what the radio has been doing. Everyone is obsessed with the current tax scheme. And it is important, as it affects costs and prices and ultimately changes the shape of economic activity.

But, really, how much is collected from whom in whatever proportion is a secondary consideration. Spending is the first. Until and unless something is bought, nobody has to pay for it.

What the government buys is at the root of many interesting arguments, too. All of it must be paid for by collected taxes, either yesterday or tomorrow.

Another point that the Progressives and lefties miss is about taxes on corporations and “the rich”. The righties, too, never seem to explain this. The point is that when some large entity—MegaCorp or Daddy Warbucks—pays less than the nominal tax rate percentage, it is most often not because they have shrewd accountants. It’s not because they’re greedy by nature.

Entities pay reduced taxes because the government wants to change their behavior. Government offers incentives, usually in the form of deductions. Sometimes in the form of credits.

Deductions reduce the effective cost of the desired behavior. Credits essentially provide tax-free income for the desired behavior.

When the current President promises a “Green Energy Economy”, he calls for legislation to encourage green energy. When ExxonMobil puts some money in wind farms, or when General Electric spends on smart grid technology, they get tax breaks.

If government was not trying to make us behave, there would be few so-called loopholes.