HOW ECONOMIC INCENTIVES COMPROMISE AMERICA’S MOST IMPORTANT VALUE
Equality and liberty are not always compatible and in some cases directly opposed, but there is one notion of equality that is a necessary component of liberty, and that is “equality of opportunity.”
Although this term is used differently on opposite sides of the political spectrum, advocates of liberty and limited government usually use it to mean that humans should be treated equally before the law. That is, while people may be raised in vastly different situations and given different advantages and disadvantages, everyone ought to have the same opportunities to use their abilities to achieve success and fulfillment. “Ought to have” doesn’t mean “have,” but still, equal opportunity is the goal.
Opposed to this is the idea of “equality of outcome.” In order to equalize outcomes or conditions, governmental authorities impose dramatic distributions of wealth in order to ensure that each member of the society, whether he or she has created wealth or not, has as much or as little as every other member.
Many self-described proponents of the free market would agree with all of this – except when it comes to corporate welfare.
On that subject, the thinking of many “conservative” South Carolina policymakers seems to be: Government have both the right and the duty to confer advantages on companies that can bring jobs to the state, look like promising investments, or just seem deserving for one reason or another.
Suddenly, many proponents of the free market and equal opportunity see no trouble with keeping taxes high – because the corporate welfare system can only exist when taxes remain high. Tax breaks become meaningless as the tax in question goes lower.
With a 5 percent corporate income tax rate, 6 percent sales tax rate and 7 percent personal income tax rate on incomes over $14,000, South Carolina’s tax policies are far from ideal. Accordingly, instead of trying to fix this policy by lowering rates, our supposedly “conservative” policymakers have chosen to play the role of “investor” by giving some people, and especially companies, special tax rates and cuts. As we’ve repeatedly reported, South Carolina doles out hundreds of millions of taxpayer dollars in “economic development” each year, and much of this is in the form of corporate income tax credits. For example, the state gave out $143 million in these credits in 2010 – not including the $1.5 billion in credits carried over from previous years. The Nerve, moreover, has thrown light on the hundreds of millions of taxpayer-backed incentives given out to companies like Boeing and Continental.
Nor, to top it off, have these efforts produced anything but lackluster results.
But these numbers set aside, how do corporate welfare policies (or, to use the popular euphemism, “incentives”) relate to liberty and limited government? Even if these policies did prove to create better results – and the only “evidence” that they do is anecdotal – would they be worth it?
For liberty’s sake, no.
The reason can be brought back to equality of opportunity. While the ideal environment for equality of opportunity would involve no corporate income taxes, since the tax does exist, it should be applied equally to all companies. Taxes impede opportunity – by its nature, the act of taking money from people or companies inhibits what those people or companies can do – but applying taxes selectively is a far greater assault of opportunity.
When the government gives a special tax break to Company A, and Company B is forced to pay the normal tax rate, there is no equality of opportunity. Company A is given an advantage over other companies, not because of its merit or its ability to create value, but because a group of lawmakers or bureaucrats decided it should have that advantage. By government giving one company an advantage over another, the market is distorted and can no longer be legitimately called “free.”
As liberty and free-market advocates push for lower taxes for both corporations and businesses, they should keep in mind that trying to solve one form of government intervention (high taxes) with another form of government intervention (government-dictated incentives) only makes the mission of lowering the overall rates more difficult. A deal to lower tax rates would likely involve a reduction in tax credits and subsidies to certain companies and industries. And who would oppose that? These same companies and industries. Thus, handing out more incentives moves us further away from the goal of low taxes.
Incentives are, in effect, a way for politicians to lower taxes without actually lowering taxes. The real problem, however, isn’t what they’re not doing – it’s what they’re doing, which is negating equality of opportunity.