Voice For Liberty

Category: Free markets

  • Wind tax credits are government spending in disguise

    Recently Kansas Governor Sam Brownback and U.S. Senator Jerry Moran of Kansas made the case for extending the production tax credit (PTC) for the production of electrical power by wind.

    The PTC pays generators of wind power 2.2 cents per kilowatt-hour produced, a high rate of subsidy for a product that sells for 9.5 cents, according to a March 2010 illustration provided by Westar.

    Brownback and Moran contend that this tax credit is necessary to let the industry “complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace.” But wind is not a new industry. The PTC has been in place for twenty years. If an industry can’t get established in that period, when will it be ready to stand in its own?

    The authors also contend that canceling the PTC will result in a “tax hike on wind energy companies.” To some extent this is true — but only because the industry has enjoyed preferential tax treatment that it should never have received.

    The proper way to view the PTC is as a government spending program in disguise. That’s the true economic effect of tax credits. They are equivalent to grants of money.

    Amazingly, Brownback and Moran do not realize this — at least if we take them at their written word as they describe the PTC: “These are not cash handouts; they are reductions in taxes that help cover the cost of doing business.” (Emphasis added.)

    It is the mixing of spending programs with taxation that leads these politicians to wrongly claim that tax credits are not cash handouts. But not everyone falls for this seductive trap. In an article in Cato Institute’s Regulation magazine, Edward D. Kleinbard explains:

    Specialists term these synthetic government spending programs “tax expenditures.” Tax expenditures are really spending programs, not tax rollbacks, because the missing tax revenues must be financed by more taxes on somebody else. … Tax expenditures dissolve the boundaries between government revenues and government spending. They reduce both the coherence of the tax law and our ability to conceptualize the very size and activities of our government. (The Hidden Hand of Government Spending, Fall 2010)

    U.S. Representative Mike Pompeo of Wichita recognized the cost of paying for tax credit expenditures when he recently wrote: “Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.”

    This is an example of the seen and unseen, where thinking is confined only to what is easily seen. Many years ago Frederic Bastiat explained this problem in his famous parable of the broken window. More recently the school of public choice economics has warned us the problem of concentrated benefits and dispersed costs. Politicians hope we won’t notice.

    When Brownback and Moran write of the loss of income to those who profit from wind power, we should remember that these profits do not arise from transactions between willing partners. Instead, they result from politicians who override the judgment of free people and free markets with their own political preferences — along with looking out for the parochial interests of the home state. We need less of this type of wind power.

  • Left-wing sincerity exposed

    It’s often alleged by the political left that conservative and libertarian activists are nothing more than Astroturf, meaning false or fake grassroots activism. The charge is that the activists are duped into — or paid for — engaging in political activism. Which makes the following video from the Koch Industries Koch Facts site all the more interesting. Here’s the description of the video on YouTube:

    “Robert Greenwald’s Brave New Foundation is paying people like Jesse Lava to make harassing phone calls to Koch Industries as part of their ‘Koch Brothers Exposed’ propaganda videos. But when he fails to properly hang up the phone, Jesse’s true character is revealed.”

    It’s worth clicking below to view this video that’s one and one-quarter minutes in length:

  • If government ordered your lunch, would you get what you want?

    Speaking on government making decisions for us, Professor Antony Davies of Duquesne University concludes “Even if it’s benevolent, it fails because it lacks the necessary information to make those decision correctly.”

    The motivation of government officials coupled with their lack of information: These are two reasons why we need to remove as much decision-making as possible from the public sphere. Yet we see the rush to do the opposite. From federal government officials making health care decisions to local officials deciding when, how, and where economic development should take place, the benevolence and knowledge of these officials must be questioned.

    Some believe that if we only had more altruistic leaders or smarter politicians and bureaucrats, all would be well. But there is simply no way that government can replace the collective wisdom of free people voluntarily trading in free markets, their activities coordinated by something so simple as a price system left free from government interference.

    This is the essence of economic freedom as defined at EconomicFreedom.org, the producer of this video. “Economic freedom is the key to greater opportunity and an improved quality of life. It’s the freedom to choose how to produce, sell, and use your own resources, while respecting others’ rights to do the same. … Economic freedom is the key to greater opportunity and an improved quality of life. … While a simple concept, economic freedom is an engine that drives prosperity in the world and is the difference between why some societies thrive while others do not.”

  • Stossel on “what is fair?”

    What is fair? It’s a timely question, as President Barack Obama has made this question a theme of his campaign for re-election. This week John Stossel took up this question in an episode of his weekly television show.

    In his closing segment, Stossel summed up what was learned on the show:

    The idea that government can make life more fair appeals to people. At least it does until they really think about it. So, I’ll try to help. The president says fairness requires higher taxes. But, is it fair that the richest ten percent of Americans already pay more of the nation’s income tax than the richest ten percent in every other industrial nation, even Sweden?

    Is it fair, as Art Laffer said, that American corporations pay the highest corporate tax rate in the world?

    And beyond taxes: the president says school vouchers aren’t fair because they’ll take money from government schools. But is it fair that the president sends his daughters to elite private schools, while denying other kids that opportunity? No, I would say.

    Clearly the term “fair” can be spun lots of ways. Politicians, for example, like to compare peoples’ incomes. But do equal incomes make life fair?

    Think about this. Who’s happier: this good-looking Florida surfer dude? He hangs out at the beach all day. I assume he’s popular with the ladies, but doesn’t make much money. Versus: This computer geek. This is Bill Gates when he was younger. He’s much richer, but he spent hours of his life hunched over a computer screen. I don’t presume to know whose life is better. …

    It seems reasonable to want government to make life more fair. But when government takes your money and freedom to try to do that, government makes life worse. It makes everyone poor. And the biggest threat is not just that government makes us poor, it makes us less. As government gets bigger, individuals get smaller. What’s really fair is to have limited government. That means the same rules for everyone. No special favors, no handouts.

  • Does government spending create economic growth?

    Does government have the ability to create jobs?

    In the following video presentation, Professor Antony Davies of Duquesne University says yes, government spending creates some jobs, but taxation destroys other jobs. “At the end of the day, the government isn’t creating jobs, it’s moving jobs.”

    In his presentation, Davies presents charts comparing government spending and economic growth. The only relationship that emerges is that as government spending grows, the economy contracts. Meaning: government spending is a negative factor for economic growth.

    Davies says that the fallacy of stimulus spending is that we look at only half the picture, and ignore the taxation that raises the money that is spent.

    The private sector — that is, free people making decisions in their own best interest — is the best way to generate economic growth, wealth, and importantly, jobs. The best way for government to foster this process is to get out of the way, Davies says.

  • Rebuilding Joplin

    Economic Freedom has a story about the rebuilding of Joplin, Missouri after last year’s devastating tornado.

    Daniel J. Smith, economics professor at Troy University, studied the rebuilding of Joplin, Missouri in the months following the tornado. The following video discusses how economic freedom can help areas recover from natural disasters. Says Smith:

    I think one of the key factors in the recovery process in Joplin, from the tornado, is that the government officials allowed the community to start rebuilding itself. I think Joplin is a great example of the power of people — free people — coming together and both using profit motive, in the businesses, using religious reasons for faith-based organizations, and just concern for your fellow man, in the community-based organizations, to rebuild a disaster stricken community.

    In the video, Smith explains that rising wages — sometimes increasing over 500 percent — were strong market signals that certain types of labor were needed in Joplin. If these prices for labor were controlled through government regulation, the price signals would not be heard by the needed laborers. Yes, governments and news media might let the country know that these types of workers are needed in Joplin. But unless workers can earn high wages in Joplin, what motive do they have to leave their current homes and travel to Joplin?

    The price system — operating in markets free from government regulation — proves again to be the most efficient way to allocate resources to where they are most urgently needed and valued.

  • Wind energy split in Kansas

    Despite the promise as a temporary subsidy when it started twenty years ago, wind energy is reliant on government handouts. Today’s Wall Street Journal brings this into focus, writing: “The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billion in subsidies for nearly every stage of wind production.” (See Republicans Blow With the Wind: Another industry wants to keep its taxpayer subsidies..)

    The piece also properly refutes the argument that oil and gas receives the same type of tax credits as does wind and other renewable energy forms. “The most dishonest claim is that wind and solar deserve to be wards of the state because the oil and gas industry has also received federal support. That’s the $4 billion a year in tax breaks for oil and gas (which all manufacturers receive), but the oil and gas industry still pays tens of billions in federal taxes every year.” There’s a difference between tax deductions, which reduce taxable income, and tax credits, which are government spending programs in disguise.

    Despite this: Senator Jerry Moran of Kansas has joined with five other senators in urging the Senate to pass an extension of the subsidy program for wind power. Kansas, it should be noted, has a lot of wind. Our former governors Sebelius and Parkinson bought into the green energy fantasy, and current governor Kansas Governor Sam Brownback agrees, having penned op-eds in support of wind energy subsidy programs and usage mandates. Wichita Mayor Carl Brewer has been busy promoting Wichita as a site for wind energy-related industry, despite its failing economics based on government handouts.

    (By the way, it’s not only wind that is receiving subsidy on Kansas. Recently the Department of Energy announced the award of a $132.4 million loan guarantee to a cellulosic ethanol plant in southwest Kansas. At the time of the award, no commercial cellulosic ethanol had been produced in America. See Kansas and its own Solyndra.)

    Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. Writes the Journal: “Here’s a better idea. Kill all energy subsidies– renewable and nonrenewable, starting with the wind tax credit, and use the savings to shave two or three percentage points off America’s corporate income tax. Kansas Congressman Mike Pompeo has a bill to do so. This would do more to create jobs than attempting to pick energy winners and losers. Mandating that American families and businesses use expensive electricity doesn’t create jobs. It destroys them.”

    Republicans Blow With the Wind

    Another industry wants to keep its taxpayer subsidies.

    Congress finally ended decades of tax credits for ethanol in December, a small triumph for taxpayers. Now comes another test as the wind-power industry lobbies for a $7 billion renewal of its production tax credit.

    The renewable energy tax credit — mostly for wind and solar power — started in 1992 as a “temporary” benefit for an infant industry. Twenty years later, the industry wants another four years on the dole, and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.

    The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billon in subsidies for nearly every stage of wind production.

    Continue reading at the Wall Street Journal (subscription required)

  • Stopping crony capitalism

    Paul Jacob of Common Sense with Paul Jacob and Citizens in Charge has been at the forefront of promoting citizen-powered democracy for many years. I happened to meet him a few years ago and started following his work. The initiative and referendum process is not common in Kansas, as there aren’t many opportunities for citizens to petition their government. So when I became involved in a referendum petition in Wichita last fall, I called Paul and sought advice. Without his helpful advice, I don’t know if we could have filed the successful petition that led to the election in Wichita this week.

    Stopping Crony Capitalism

    By Paul Jacob

    Voters in Wichita, Kansas, went to the polls, Tuesday, to smash a measure that would have forked over $2.25 million in tax rebates to a downtown hotel project. Those supporting the giveaway spent $300,000 to promote the deal, while opponents ponied up a scant $30,000 against it. The vote nevertheless strongly weighed against the big money, 62 to 38 percent.

    The Wichita City Council had enacted this “economic development” deal with the hotel developers, and that would have been the end of it … but for some pesky Wichita taxpayers.

    Continue reading at Common Sense with Paul Jacob.

  • Obama attacks on Charles and Koch discussed

    Today a segment of “America Live” on Fox News carried discussion of President Barack Obama’s attacks on Charles G. Koch and David H. Koch, who are principals of Wichita-based Koch Industries. Laura Ingraham and Megyn Kelly participate.