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May 12, 2008

Villanova tax professor James Maule and I have had a friendly discussion going over tax and economic policy. Well, economics, really, as I'm not sure I have any disagreements I have with him over tax policy.

Dr. Maule worries about future resource scarcity, and he thinks the government should mobilize to do something about it. He says that the market can't be relied on to provide "essential" items.

I think it's exactly the opposite - only the market can provide essentials. The history of the Soviet Union and the Eastern Bloc was a 75-year experiment that demonstrated the inability of governments to reliably supply essentials. This continues to be demonstrated in the countries were the communist experiment continues in spite of all reason: Cuba and North Korea. Whenever the government meddles, they inevitably just make things worse.

An Instapundit correspondent sums it up well:

Good Lord, now we've got Republicans proposing Five Year Plans and Seven Step programs like some 1930's Soviet Beet Kommissar. The last thing we need is the know-nothings in Congress pretending they have the expertise required to plan the future of a market segment as huge and critical as energy. They have no such knowledge because that knowledge doesn't exist anywhere as some type of accessible whole. It takes a market with millions upon millions of people, each with their own intimate knowledge of their own needs and capabilities, participating in an open energy marketplace with free prices to coordinate such an unimaginably huge, ever-changing body of knowledge and action.

But when Dr. Maule talks taxes, he talks wisely. Here he speaks of the so-called "anti-foreclosure" legislation going through Congress:

The provision that would provide a tax credit to encourage the purchase of homes in foreclosure has been replaced by a provision that would allow a tax credit to first-time home buyers. How this prevents foreclosures baffles me. How it rescues the housing market also baffles me, because the foreclosures are hitting higher-priced markets far more severely than they are affecting entry-level markets.


This bill is a classic example of bad tax policy and bad legislation. First, the provisions do not address the underlying cause of the housing market mess. Second, the provisions will not accomplish what they are marketed as accomplishing. Third, tax breaks wholly unrelated to the mess are tagged onto the legislation as it works its way through the legislative process, for a variety of reasons that are far more political than economically sound. Fourth, the legislation will make the tax law and tax return preparation more complicated. Fifth, it will make tax compliance and tax return preparation more difficult.

Amen, brother Maule.

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Here, here Free Market, here, here, Dr. Maule.

I think that I may need to add that an essential part of the free market is the futures market and it needs to maintain its liquidity and happiness.

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