The US debt (proper debate) - Page 37

MICHAEL MUNGER, a professor of political science at Duke University, insightfully compares "tax expenditures" to the Catholic church's practice of selling indulgences, which fomented the Reformation by sending Martin Luther into fit of righteous pique. Mr Munger reminds us that

Indulgences were "get out of purgatory free!" cards. Of course, it was the church that had created the idea of purgatory in the first place. Then the church granted itself the power to release souls from purgatory (for a significant fee, of course).

As Luther put it, in his Thesis No. 27, "as the penny jingles into the money-box, the soul flies out."
If high tax rates are a sort of purgatory (and who doubts it?), then tax credits are indeed akin to indulgences. Mr Munger writes:

We let people out of tax purgatory if they own large houses, if they receive expensive health insurance from their employer, if they produce sugar or ethanol, or any of thousands of special categories. These categories have nothing to do with need (is there a national defense justification for a protected sugar industry?), but instead depend on how much these sinners are willing to pay to members of Congress.

"As the campaign contributions jingle into the campaign funds, the tax revenues fly out", he adds. As a result, "we have categories within categories within subgroups, all at different prices, deductions or exemptions that release some elites from the published tax rates."

Mr Munger observes that America's blockheaded debt-ceiling debate flows in part from a bipartisan commitment to the medieval theology of our tax code:

The Republicans in Congress are prepared to sacrifice our immortal debt rating to the proposition that not one penny increase is possible, even though almost no one actually pays those rates.
The Democrats in Congress like high rates, so that they can sell indulgences.

Republicans depend on selling indulgences, too, Mr Munger is keen to stress. Bowles-Simpson recommended closing some of the tax code's most egregious loopholes. But the political incentives led President Obama to refuse the chance to go after tax expenditures; he has mostly pushed for higher rates. This is all incredibly depressing. You know we're in trouble when Mr Munger, one of our sharpest scholars of political economy, is unable to offer useful advice beyond calling for a reformation, "a Martin Luther to speak out and tell the truth".

I think many millions of Americans believed that the tea-party movement marked the beginning of a real reformation, yet the tea-party animals in Congress, in the thrall of Grover Norquist's anti-tax fanaticism, have been among those most intransigently opposed to bringing clarity and fairness to our tax code. When Tom Coburn, a staunchly conservative senator from Oklahoma, set forth a "grand bargain" proposal that would cut $9 trillion in spending, including $1 in tax expenditures, Mr Norquist denounced it as a "$1 trillion tax hike plan". But Mr Coburn is right when he argues that

Tax expenditures are not tax cuts. Tax expenditures are socialism and corporate welfare. Tax expenditures are increases on anyone who does not receive the benefit or can’t hire a lobbyist…to manipulate the code to their favor.

Mr Coburn, who is a bit loose with his use of "socialism", may not be the Luther Mr Munger is looking for, but I haven't heard from anyone more Luther-like on this issue. Mr Munger identifies Mr Obama with the Pope, for mostly ignoring Simpson-Bowles, but I nominate Grover Norquist instead for his role as pontiff of the increasingly corrupt supply-side faith.

Which reminds me of a charmingly opinionated philosophy professor from Texas I once met. He told me the story of his conversion in adulthood from Catholicism to the Orthodox church. With each mention of the despised "Pope of Rome", he feigned to spit on the ground. Try it with "Grover Norquist". It's satisfying.