Thursday, August 28, 2008

A New Report from the Baloney Institute ... er, Buckeye Institute

The title above is too harsh since the Buckeye Institute for Public Policy Solution does seem to have good intentions. They simply suffer from the lack of an underlying system of ethics and economics from which to judge their policy positions. To wit ...

BI recently issued its policy report,
A Proposal to Phase Out Ohio's Income Tax. Sure there is the obvious error -- the Commercial Activity Tax was passed in 2005, not 2007 as reported, but the real issue is the absence of a deep understanding of statistics, economics, and public policy.

The problem is that BI adheres to positivist nonsense. Correlating sets of data and deriving the associated statistics does not create economic law. Now the author does qualify some statements, but he often uses will when might is appropriate. "Eliminating the Ohio income tax will ... " is not a true statement -- and I suspect the author knows as much. Eliminating the tax might result in X or Y, but will is neither true nor honest.

Full disclosure: I support eliminating the state's income tax -- take state government back to its level from as recent as 1972.

But I would never be so bold as to claim that the elimination of the tax would necessarily "boost [the state's] population by 6% and economic activity by 3.5%." Such claims are positivist nonsense.

Using the economic truths of Ludwig von Mises, I can make the apodictically true claim that eliminating the state's income tax will improve the state's general economy, as well as the quality of life for everyone save the state's tax consumers -- the state and its tax hungry partners.

Applying the BI method of econometrics, I could correlate tax rates in Ohio and Al Gore's bogus global warming data and conclude that the increasing tax burden of Ohio's residents is the result of a supposed warming earth. Or I could as easy conclude the converse.

The researchers at BI assign too much power to their statistical software. But, in the absence of an underlying system of ethics and economics, all they have is their statistical software. And software has never discovered truth.

Murray Rothbard and Hans-Hermann Hoppe of the Austrian school of economics created a system of ethics from which to judge individual behavior and public policy. BI has no such system. So while they advocate for the elimination of the income tax, they do so based on state and local governments having the ability to raise a similar amount of revenue. What? Is it that just the income tax is bad? Or is it that taxes in general are bad?

It certainly seems that BI's policy analysts still subscribe to the Laffer Curve -- a curve where a certain tax rate provides the largest amount of government revenue. But such a belief simply begs the question:
Is a system that generates the most government revenue optimal? BI assumes the answer is yes and then sets out to create a tax system that lifts the most tax dollars from our wallets.

The BI tax proposal is not about limiting government and reducing tax burdens, it is simply about substituting one tax for another -- a bad for a bad. BI loves the CAT since it raises more tax revenue per dollar of consumer goods than the same tax rate would generate from a sales and use tax. And this is considered a free market solution, coming from a supposed free market think tank? Hmmm.

Does BI really believe that the drag on Ohio's economy is just the income tax? And that by raising the CAT rate to generate the same amount of government revenue and waste, Ohio's economy will improve? The folks at the institute need to read Rothbard's Power and Market to realize their essential error. Or, just maybe, BI is not about lower taxes at all.

The Buckeye Institute needs to rethink its mission. If its mission is to simply advocate the substitution of one tax for another, all the while making certain that state and local governments are made whole, then it needs to end its efforts and close up shop. Wasting time substituting an increased CAT for the income tax will not lower tax rates in Ohio; it will not reduce the size and creep of state and local governments, and it will not improve the economic situation in Ohio. A lot of work for nothing; a chasing after the wind.

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