April 9, 2006

Big business v. low taxes

By: AFF Editors

My secret (and I will bet that I am not alone in this) is that I don’t really mind doing my taxes. I kind of like it, actually. Putting numbers in little boxes, following concise but somewhat opaque instructions, and getting to add and subtract (even multiply sometimes!) are all very fun for me. I’m allowed to admit this now because my wife is stuck with me, and being a total nerd is not grounds for annulment.

But I still hate tax day. I hate tax day because I look at the total amount of taxes I have paid, and I think about what I could have done with that much money. One year, I called my brother overseas on tax day, and said, “do you know how much richer I would be if not for the Leviathan federal government?”

He aptly responded that my job wouldn’t exist if not for the Leviathan federal government. Fair enough: if Washington didn’t control so much of our lives and our fortune, Americans wouldn’t care about it at all, and even fewer people would read what I write.

But that charge–that my livelihood is dependent on the overstuffed government, and in turn on high taxes–applies to almost everyone who works in this town or most state capitals. The same is true, too, of many big businesses: they depend on big government. It is therefore not surprising to learn how much big business lobbies for higher taxes.

Residents of the Commonwealth of Virginia saw up close this cozy relationship between big business and tax hiking politicians from 2001 through 2004. Realtors, developers, and construction companies all funded a campaign to hike sales taxes in order to build more roads. The purported motivation was to reduce congestion on highways.

However, the same businesses funding the tax hike were planning to build hundreds of new houses along the new roads–meaning more people on more lanes, and just as much traffic. These developers wanted to increase the value of their land by making it more accessible. State Senator Ken Cuccinelli put it well when he told taxpayers, “they are asking you to pave their driveway.”

Other developers hoped to get the construction contracts to build the roads themselves. The tax hike went up for a referendum on Election Day 2002, but the tax hikers lost. Two years later, however, Democratic Mark Warner deployed the businessmen to the General Assembly, where they convinced the majority-Republican legislature to raise taxes. So, after a brief victory, the taxpayers soon lost to big business.

Today, a similar scene is unfolding on Capitol Hill. As George W. Bush calls for permanent repeal of the estate tax (they only sort of repealed it in 2001), Republican lawmakers are hearing the counter-argument, my sources tell me, from a former conservative governor of Oklahoma.

Frank Keating, who railed against the estate tax as governor, has now become an effective lobbyist for its preservation. Why the switch? Today he is president of the American Council of Life Insurers. A key reason to buy life insurance or annuities is to avoid paying the estate tax. If the death tax were no longer a threat, some of Keating’s members’ business would dry up.

These stories are not aberrations. In Colorado, a business-funded referendum campaign succeeded last year in weakening the state’s Taxpayer Bill of Rights. Last year, Duke Energy’s CEO called for a tax on carbon dioxide emissions. There are plenty of similar stories, the best of which I tell in my forthcoming book.

Big business has many reasons to support higher taxes.

The most straightforward is the case of highway-builders: their customers are governments, and so they want their customers to be rich.

Then there are those people who help you avoid taxes–life insurers, tax attorneys, and, frankly, realtors. If taxes are more oppressive, their services become more valuable. When taxes go down, tax shelters become less urgent to the average taxpayer.

Next we get the alligator-feeders. These are the companies that are terrified that the taxman will come after them, and they believe that if they feed the taxman–by throwing consumers, property owners, and workers at him–he will get full before he takes a bite of the corporation.

In all of these cases, the businesses may be making good short-term moves, but they will all hurt everyone in the long run. First, tax hikes hurt the economy, which hurts your private sector customers if you have any. Tax hikes also eventually have a downward tug on tax revenues for the same reason, hurting your government customers.

The alligator-feeders are even more mistaken. The alligator of the taxman never gets full. No amount of money is ever enough for the appropriators.

So, as you curse your high taxes today, don’t just thank Teddy Kennedy and his ilk, thank big business, too.

Tim Carney is the author of the forthcoming The Big Ripoff: How Big Business and Big Government Steal Your Money, to be released July 7 from John J. Wiley & Sons. He is also the Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

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